SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
--
Pre-Effective Amendment No. -----
Post-Effective Amendment No. 65
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
--
Amendment No. 59
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(Check appropriate box or boxes.)
MIDWEST TRUST FILE NO. 2-52242 and 811-2538
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(Exact name of Registrant as Specified in Charter)
312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 629-2000
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Robert H. Leshner, 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on Februay 1, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of shares under the Securities Act of
1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended September 30, 1996 was
filed with the Commission on November 27, 1996.
<PAGE>
CROSS REFERENCE SHEET
FORM N-1A
ITEM SECTION IN PROSPECTUS
1........................... Cover Page
2........................... Expense Information
3........................... Financial Highlights; Performance
Information
4........................... Operation of the Funds; Investment
Objectives, Investment Policies and
Risk Considerations
5........................... Operation of the Funds
6........................... Cover Page; Dividends and
Distributions; Taxes; Operation of
the Funds
7........................... How to Purchase Shares; Operation
of the Funds; Calculation of Share
Price and Public Offering Price;
Exchange Privilege; Shareholder
Services; Distribution Plans;
Application
8........................... How to Redeem Shares; Shareholder
Services
9........................... None
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
10.......................... Cover Page
11.......................... Table of Contents
12.......................... The Trust
13.......................... Definitions, Policies and Risk
Considerations; Investment
Limitations; Portfolio Turnover
14.......................... Trustees and Officers
15.......................... Principal Security Holders
16.......................... The Investment Adviser and
Underwriter; Distribution Plans;
Custodian; Accountants; MGF
Service Corp.
17.......................... Securities Transactions
18.......................... The Trust
19.......................... Calculation of Share Price and
Public Offering Price; Other
Purchase Information; Redemption
in Kind
20.......................... Taxes
21.......................... The Investment Adviser and
Underwriter
22.......................... Historical Performance Information
23.......................... Annual Report
<PAGE>
PROSPECTUS
February 1, 1997
Midwest Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
SHORT TERM GOVERNMENT INCOME FUND
INTERMEDIATE TERM GOVERNMENT INCOME FUND
The Short Term Government Income Fund and the Intermediate Term
Government Income Fund (individually a "Fund" and collectively the "Funds") are
two separate series of Midwest Trust.
The Short Term Government Income Fund invests primarily in short-term
U.S. Government obligations backed by the "full faith and credit" of the United
States and seeks high current income, consistent with protection of capital.
The Short Term Government Income Fund's portfolio securities are valued
on an amortized cost basis. Fund shares are neither insured nor guaranteed by
the United States Government or any other entity. It is anticipated, but there
is no assurance, that the Fund will maintain a stable net asset value per share
of $1.
The Intermediate Term Government Income Fund invests primarily in U.S.
Government obligations maturing within twenty years or less with a
dollar-weighted average portfolio maturity under normal market conditions of
between three and ten years and seeks high current income, consistent with
protection of capital. To the extent consistent with the Fund's primary
objective, capital appreciation is a secondary objective.
The Intermediate Term Government Income Fund offers two classes of
shares: Class A shares (sold subject to a maximum 2% front-end sales load and a
12b-1 fee of up to .35% of average daily net assets) and Class C shares (sold
subject to a 1% contingent deferred sales load for a one-year period and a 12b-1
fee of up to 1% of average daily net assets). Each Class A and Class C share of
the Fund represents identical interests in the Fund's investment portfolio and
has the same rights, except that (i) Class C shares bear the expenses of higher
distribution fees, which will cause Class C shares to have a higher expense
ratio and to pay lower dividends than those related to Class A shares; (ii)
certain other class specific expenses will be borne solely by the class to which
such expenses are attributable; and (iii) each class has exclusive voting rights
with respect to matters relating to its own distribution arrangements.
Shares of the Funds 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
Funds' investments and their business affairs.
This Prospectus sets forth concisely the information about the Funds
that you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated February 1, 1997 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.
<PAGE>
EXPENSE INFORMATION
SHORT TERM GOVERNMENT INCOME FUND
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Exchange Fee None
Redemption Fee None*
Check Redemption Processing Fee (per check):
First six checks per month None
Additional checks per month $0.25
* A wire transfer fee is charged by the Fund's Custodian in the case
of redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
- ------------------------------
Management Fees .48%
12b-1 Fees .11%(A)
Other Expenses .40%
----
Total Fund Operating Expenses .99%
====
(A) The Fund may incur 12b-1 fees in an amount up to .35% of its average net
assets. 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.
INTERMEDIATE TERM GOVERNMENT INCOME FUND
Class A Class C
Shareholder Transaction Expenses Shares Shares
- -------------------------------- ------- ------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 2% None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price) None* 1%
Sales Load Imposed on Reinvested Dividends None None
Exchange Fee None None
Redemption Fee None** None**
Check Redemption Processing Fee (per check):
First six checks per month None None
Additional checks per month $0.25 $0.25
* Purchases at net asset value of amounts totaling $1 million or more may
be subject to a contingent deferred sales load of .75% if a redemption
occurred within 12 months of purchase and a commission was paid by the
Adviser to a participating unaffiliated dealer.
** 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."
- 3 -
<PAGE>
Annual Fund Operating Expenses (as a percentage of average net assets)
Class A Class C
Shares Shares
------- -------
Management Fees .49% .49%
12b-1 Fees(A) .16% .01%
Other Expenses After Reimbursements .34% 1.14%(B)
---- -----
Total Fund Operating Expenses
After Expense Reimbursements .99% 1.64%(C)
==== =====
(A) Class A shares may incur 12b-1 fees in an amount up to .35% of average
net assets and Class C shares may incur 12b-1 fees in an amount up to
1.00% of average net assets. 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.
(B) Absent expense reimbursements by the Adviser, other expenses of Class C
shares would have been 2.46% for the fiscal year ended September 30,
1996.
(C) Absent expense reimbursements by the Adviser, total operating expenses
of Class C shares would have been 2.96% for the fiscal year ended
September 30, 1996.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred during the most recent fiscal year except that other
expenses for Class C shares of the Intermediate Term Government Income Fund have
been restated to reflect an anticipated decrease in the amount of expense
reimbursements to be made by the Adviser during 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
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:
Class A Shares, Class C Shares,
Short Term Intermediate Intermediate
Government Term Government Term Government
Income Fund Income Fund Income Fund
------------ --------------- ------------
1 Year $ 10 $ 30 $ 27
3 Years 32 51 52
5 Years 55 74 89
10 Years 121 139 194
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<PAGE>
FINANCIAL HIGHLIGHTS
The following information, which has been audited by Arthur Andersen LLP,
is an integral part of the audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of
September 30, 1996 and related auditors' report appear in the Statement of
Additional Information of the Funds, which can be obtained by shareholders at no
charge by calling MGF Service Corp. (Nationwide call toll-free 800-543-0407, in
Cincinnati call 629- 2050) or by writing to the Trust at the address on the
front of this Prospectus.
SHORT TERM GOVERNMENT INCOME FUND
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR(A)
<TABLE>
Year Ended September 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income 0.044 0.046 0.027 0.022 0.035 0.059 0.073 0.079 0.058 0.051
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Dividends from net
investment income (0.044) (0.046) (0.027) (0.022) (0.035) (0.059) (0.073) (0.079) (0.058) (0.051)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value at
end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ======= ======= ======= ===== ====== ====== ====== ======
Total return 4.51% 4.69% 2.72% 2.24% 3.55% 6.06% 7.50% 8.22% 6.08% 5.22%
====== ====== ======= ======= ====== ===== ===== ====== ===== =====
Net Assets at end
of year (000's) $91,439 $87,141 $89,708 $96,962 $91,519 $101,535 $101,835 $104,956 $110,156 $142,083
======= ====== ======= ======= ======= ======== ======== ======== ======== =======
Ratio of expenses to
average net assets 0.99% 0.99% 0.99% 0.99% 0.99% 0.99% 0.99% 1.01% 1.00% 1.01%
Ratio of net investment
income to average
net assets 4.42% 4.59% 2.69% 2.22% 3.51% 5.90% 7.25% 7.91% 5.84% 5.09%
(A)All per share data has been restated to reflect the effect of a 10 for 1 share split on February 28, 1990.
</TABLE>
<PAGE>
<TABLE>
INTERMEDIATE TERM GOVERNMENT INCOME FUND - CLASS A
<CAPTION>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year $10.73 $10.14 $11.59 $11.10 $10.45 $9.85 $10.09 $10.12 $10.02 $10.71
------- ------- ------- ------- ------ ------ ------ ------- ------- -------
Income from investment
operations:
Net investment income 0.61 0.64 0.56 0.60 0.68 0.75 0.76 0.79 0.76 0.77
Net realized and
unrealized gains
(losses)on investments (0.24) 0.59 (1.32) 0.49 0.65 0.60 (0.24) (0.03) 0.10 (0.69)
------- ----- ------- ------ ------ ------ ------ ------ ----- ------
Total from investment
operations 0.37 1.23 (0.76) 1.09 1.33 1.35 0.52 0.76 0.86 0.08
------- ------- ------- ------- ------- ------- ----- ----- ----- ------
Less distributions:
Dividends from net
investment income (0.61) (0.64) (0.56) (0.60) (0.68) (0.75) (0.76) (0.79) (0.76) (0.77)
Distributions from
net realized gains -- -- (0.13) -- -- -- -- -- -- --
------- ------- ------- ------- ------ ------- ------- ------- ------- ------
Total distributions (0.61) (0.64) (0.69) (0.60) (0.68) (0.75) (0.76) (0.79) (0.76) (0.77)
------- ------- ------- ------- ------- ------- ----- ------- ------- ------
Net asset value at
end of year $10.49 $10.73 $10.14 $11.59 $11.10 $10.45 $9.85 $10.09 $10.12 $10.02
======= ======= ====== ====== ====== ====== ===== ====== ====== ======
Total return(A) 3.55% 12.52% (6.76%) 10.15% 13.27% 14.19% 5.31% 7.79% 8.77% 0.66%
======= ======= ======== ======= ======== ======== ======= ===== ====== =====
Net assets at end
of year (000's) $56,095 $56,969 $64,395 $89,666 $59,290 $40,896 $37,800 $40,391 $52,405 $56,084
======== ======= ======= ======== ======= ======= ======= ======= ======== =======
Ratio of expenses to
average net assets 0.99% 0.99% 0.99% 0.99% 1.00% 1.00% 1.02% 1.03% 1.04% 1.03%
Ratio of net investment
income to average
net assets 5.75% 6.17% 5.17% 5.31% 6.40% 7.39% 7.57% 7.83% 7.43% 7.30%
Portfolio turnover rate 70% 58% 236% 255% 76% 74% 92% 161% 88% 54%
(A)The total returns shown do not include the effect of applicable sales loads.
</TABLE>
<PAGE>
<TABLE>
INTERMEDIATE TERM GOVERNMENT INCOME FUND - CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
YEAR YEAR PERIOD
ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1994(A)
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<S> <C> <C> <C>
Net asset value at beginning of period.................. $ 10.73 $ 10.14 $ 11.27
-------------- -------------- ---------------
Income from investment operations:
Net investment income................................ 0.56 0.59 0.34
Net realized and unrealized gains (losses) on
investments........................................ (0.24) 0.59 (1.13)
-------------- -------------- ---------------
Total from investment operations........................ 0.32 1.18 (0.79)
-------------- -------------- ---------------
Less distributions:
Dividends from net investment income................. (0.56) (0.59) (0.34)
-------------- -------------- ---------------
Total distributions..................................... (0.56) (0.59) (0.34)
-------------- -------------- ---------------
Net asset value at end of period........................ $ 10.49 $ 10.73 $ 10.14
============== ============== ===============
Total return(B) ........................................ 3.03% 11.96% (10.38%)(D)
============== ============== ===============
Net assets at end of period (000's)..................... $ 771 $ 598 $ 508
============== ============== ===============
Ratio of expenses to average net assets(C) ............. 1.49% 1.48% 1.46%(D)
Ratio of net investment income to average net assets.... 5.25% 5.60% 4.89%(D)
Portfolio turnover rate................................. 70% 58% 236%(D)
</TABLE>
(A) Represents the period from initial public offering of Class C shares
(February 1, 1994) through September 30, 1994.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 2.96%, 3.57% and
2.41%(D) for the periods ended September 30, 1996, 1995 and 1994,
respectively.
(D) Annualized.
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<PAGE>
INVESTMENT OBJECTIVES
The Short Term Government Income Fund and the Intermediate Term Government
Income Fund are two series of Midwest Trust (the "Trust"), each with its own
portfolio and investment objective(s). Neither Fund is intended to be a complete
investment program, and there is no assurance that the investment objectives of
either Fund can be achieved. Unless otherwise indicated, all investment
practices and limitations of the Funds are nonfundamental policies which may be
changed by the Board of Trustees without shareholder approval. For a discussion
of each Fund's investment practices, see "Investment Policies."
The Short Term Government Income Fund seeks high current income,
consistent with protection of capital. The Fund seeks to achieve its investment
objective by investing primarily in obligations issued or guaranteed as to
principal and interest by the United States Government, its agencies or
instrumentalities ("U.S. Government obligations" described below) and backed by
the "full faith and credit" of the United States, maturing within thirteen
months or less with a dollar-weighted average portfolio maturity of 90 days or
less. In order to achieve its investment objective, the Fund may also enter into
repurchase agreements collateralized by U.S. Government obligations backed by
the "full faith and credit" of the United States.
The investment objective of the Short Term Government Income Fund 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. Notwithstanding the
foregoing, the limitation of the Short Term Government Income Fund's permissible
investments to obligations backed by the "full faith and credit" of the United
States is a determination made by the Board of Trustees which may be changed by
the Board without shareholder approval, but only after notification has been
given to shareholders and after this Prospectus has been revised accordingly.
The Intermediate Term Government Income Fund seeks high current income,
consistent with protection of capital, by investing primarily in U.S. Government
obligations maturing within twenty years or less with a dollar-weighted average
portfolio maturity under normal market conditions of between three and ten
years. To the extent consistent with the Fund's primary objective, capital
appreciation is a secondary objective. In order to achieve its investment
objectives, the Fund may also
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<PAGE>
enter into repurchase agreements collateralized by U.S. Government obligations.
The investment objectives of the Intermediate Term Government Income Fund
may be changed by the Board of Trustees without shareholder approval, but only
after notification has been given to shareholders and after this Prospectus has
been revised accordingly. If there is a change in the Fund's investment
objectives, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs.
INVESTMENT POLICIES
Each Fund invests in U.S. Government obligations. The Short Term Government
Income Fund invests in short-term U.S. Government obligations backed by the
"full faith and credit" of the United States. The Intermediate Term Government
Income Fund invests in intermediate-term U.S. Government obligations.
"U.S. GOVERNMENT OBLIGATIONS" include securities which are issued or
guaranteed by the United States Treasury, by various agencies of the United
States Government, and by various instrumentalities which have been established
or sponsored by the United States Government. U.S. Treasury obligations are
backed by the "full faith and credit" of the United States Government. U.S.
Treasury obligations include Treasury bills, Treasury notes, and Treasury bonds.
U.S. Treasury obligations also include the separate principal and interest
components of U.S. Treasury obligations which are traded under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Agencies or instrumentalities established by the United States Government
include the Federal Home Loan Banks, the Federal Land Bank, the Government
National Mortgage Association, the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Student Loan Marketing Association,
the Small Business Administration, the Bank for Cooperatives, the Federal
Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm Credit
Banks, the Federal Agricultural Mortgage Corporation, the Resolution Funding
Corporation, the Financing Corporation of America and the Tennessee Valley
Authority. Some of these securities are supported by the full faith and credit
of the United States Government while others are supported only by the credit of
the agency or instrumentality, which may include the right of the issuer to
borrow from the United States Treasury. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States in
the event the agency or
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<PAGE>
instrumentality does not meet its commitments. Shares of the Funds are not
guaranteed or backed by the United States Government.
Each Fund may invest in securities issued or guaranteed by any of the
entities listed above or by any other agency or instrumentality established or
sponsored by the United States Government, provided that the securities are
otherwise permissible investments of the Fund. Certain U.S. Government
obligations which have a variable rate of interest readjusted no less frequently
than annually will be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate.
The market value of investments available to the Funds, and therefore each
Fund's yield, will fluctuate due to changes in interest rates, economic
conditions, quality ratings and other factors beyond the control of the Adviser.
The net asset value of the Intermediate Term Government Income Fund also will
fluctuate due to these changes. The portfolio securities held by the Funds 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
prepayment experience of the mortgages underlying mortgage-related U.S.
Government obligations may affect the value of, and the return on an investment
in, such securities.
Other Investment Techniques
The Funds may also engage in the following investment techniques, each of
which may involve certain risks:
MORTGAGE-RELATED U.S. GOVERNMENT OBLIGATIONS. The Intermediate Term
Government Income Fund may invest in mortgage-related U.S. Government
obligations, including GNMA Certificates, FHLMC Certificates and FNMA
Certificates.
GNMA Certificates are U.S. Government obligations guaranteed by the
Government National Mortgage Association (the GNMA) and are mortgage-backed
securities representing part ownership of a pool of mortgage loans. The pool of
mortgage loans underlying the GNMA Certificates is assembled by the issuer,
usually a private mortgage lender. The loans in the pool, issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations, are
either insured by the Federal Housing Administration or the Farmers' Home
Administration or guaranteed by the Veterans Administration. If the pool is
approved by the GNMA, GNMA Certificates are issued and sold to investors such as
- 10 -
<PAGE>
the Intermediate Term Government Income Fund. The Fund will invest only in GNMA
Certificates of the pass-through type. This type of GNMA Certificate entitles
the holder to receive all interest and principal payments owed 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. However, shares of the Fund are not guaranteed or backed by
either the GNMA or the United States Government.
FHLMC Certificates are U.S. Government obligations guaranteed by the
Federal Home Loan Mortgage Corporation (the FHLMC). As with GNMA Certificates,
FHLMC Certificates are pass-through mortgage-backed securities representing part
ownership of a pool of mortgage loans. The FHLMC generally purchases such
mortgage loans from those lenders insured by the Federal Deposit Insurance
Corporation, or Federal Housing Administration mortgagees approved by the
Department of Housing and Urban Development. The securities and guarantees of
the FHLMC are not backed, directly or indirectly, by the full faith and credit
of the United States.
FNMA Certificates are U.S. Government obligations guaranteed by the
Federal National Mortgage Association (the FNMA). The FNMA is a U.S. Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. The FNMA
purchases residential mortgages from a list of approved sellers, which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks, credit unions and mortgage banks. Pass-through
securities issued by the FNMA are not backed by the full faith and credit of the
United States, although the Secretary of the Treasury of the United States has
discretionary authority to lend the FNMA up to $2.25 billion outstanding at any
time.
Prepayments of and payments on foreclosures of mortgage loans underlying a
mortgage-related security 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 a mortgage-related
security may be prepaid at any time without penalty. If a prepayment of a
mortgage loan underlying a particular mortgage-related security occurs, the
return to the Fund may be lower if the Fund acquired the security at a premium
over par or higher if the Fund acquired the security at a discount from par. In
addition, prepayments of mortgage loans underlying a particular mortgage-related
security held by the Fund will reduce the market value of the security to the
extent the market value of the security at the time of prepayment exceeds its
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
- 11 -
<PAGE>
general, a decline in interest rates will cause the net asset value of the Fund
to increase to the extent that prepayments do not occur, while a rise in
interest rates will cause the net asset value of the Fund to decrease.
Some of the pass-through mortgage securities in which the Intermediate
Term Government Income Fund invests may be adjustable rate mortgage securities
("ARMS"). ARMS are collateralized by adjustable rather than fixed-rate
mortgages. The ARMS in which the Fund invests are actively traded. Generally,
adjustable rate mortgages have a specified maturity date and amortize principal
over their life. In periods of declining interest rates there is a reasonable
likelihood that ARMS will experience increased rates of prepayment of principal.
However, the major difference between ARMS and fixed-rate mortgage securities is
that the interest rate can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. There are two main
categories of indices: those based on U.S. Treasury obligations and those
derived from a calculated measure, such as a cost of funds index or a moving
average of mortgage rates. The amount of interest on an adjustable rate mortgage
is calculated by adding a specified amount to the applicable index, subject to
limitations on the maximum and minimum interest that is charged during the life
of the mortgage or to maximum and minimum changes to that interest rate during a
given period. Because the interest rate on ARMS generally moves in the same
direction as market interest rates, the market value of ARMS tends to be more
stable than that of fixed-rate mortgage securities and ARMS tend to experience
lower rates of prepayment of principal than fixed-rate mortgage securities.
However, ARMS are also less likely than fixed-rate mortgage securities of
comparable quality and maturity to increase significantly in value during
periods of declining interest rates.
DELAYED SETTLEMENT TRANSACTIONS. The Intermediate Term Government Income
Fund may trade securities on a "when-issued" or "to-be-announced" basis.
Obligations issued on a when-issued or to-be-announced basis are settled by
delivery and payment after the date of the transaction, usually within 15 to 45
days. In a to-be-announced transaction, the Fund has committed to purchasing or
selling securities for which all specific information is not yet known at the
time of the trade, particularly the face amount in transactions involving
mortgage-related securities. The Fund will only make commitments to purchase
obligations on a when- issued or to-be-announced basis with the intention of
actually acquiring the obligations, but the Fund may sell these securities
before the settlement date if it is deemed advisable as a matter of investment
strategy or in order to meet its obligations, although it would not normally
expect to do so. The Fund does
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not currently intend to invest more than 5% of its net assets in securities
purchased on this basis, and the Fund will not enter into a delayed settlement
transaction which settles in more than 120 days.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Repurchase agreements are transactions by which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
time and price, thereby determining the yield during the term of the agreement.
In the event of a bankruptcy or other default of the seller of a repurchase
agreement, a Fund could experience both delays in liquidating the underlying
security and losses. To minimize these possibilities, each Fund intends to enter
into repurchase agreements only with its Custodian, banks having assets in
excess of $10 billion and the largest and, in the Board of Trustees' judgment,
most creditworthy primary U.S. Government securities dealers. Each Fund will
enter into repurchase agreements which are collateralized by U.S. Government
obligations in which that Fund could invest directly. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Funds'
Custodian at the Federal Reserve Bank. At the time a Fund enters into a
repurchase agreement, the value of the collateral, including accrued interest,
will equal or exceed the value of the repurchase agreement and, in the case of a
repurchase agreement exceeding one day, the seller agrees to maintain sufficient
collateral so that the value of the underlying collateral, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 10% of the value of the net
assets of the Fund would be invested in such securities and other illiquid
securities.
BORROWING AND PLEDGING. As a temporary measure for extraordinary or
emergency purposes, each Fund may borrow money from banks or other persons in an
amount not exceeding 10% of its total assets. Each Fund may pledge assets in
connection with borrowings but will not pledge more than 15% of its total
assets. Neither Fund will make any additional purchases of portfolio securities
if outstanding borrowings exceed 5% of the value of its total assets. Borrowing
magnifies the potential for gain or loss on the portfolio securities of the
Funds and, therefore, if employed, increases the possibility of fluctuation in a
Fund's net asset value. This is the speculative factor known as leverage. To
reduce the risks of borrowing, the Funds will limit their borrowings as
described above. Each 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.
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PORTFOLIO TURNOVER. The Funds do not intend to use short-term trading as a
primary means of achieving their investment objectives. However, each Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. High turnover involves correspondingly greater
commission expenses and transaction costs and increases the possibility that the
Funds would not qualify as regulated investment companies under Subchapter M of
the Internal Revenue Code. A Fund will not qualify as a regulated investment
company if it derives 30% or more of its gross income from gains (without offset
for losses) from the sale or other disposition of securities held for less than
three months. High turnover may result in a Fund recognizing greater amounts of
income and capital gains, which would increase the amount of income and capital
gains which the Fund must distribute to its shareholders in order to maintain
its status as a regulated investment company and to avoid the imposition of
federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
Short Term Government Income Fund
Your initial investment in the Short Term Government Income Fund
ordinarily must be at least $1,000 ($250 for tax-deferred retirement plans).
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 Short Term Government Income Fund by sending a check and a
completed account application form to MGF Service Corp., P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to the "Short Term
Government Income 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 Funds' 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.
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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 Short
Term Government Income Fund by wire. Please telephone MGF Service Corp.
(Nationwide call toll-free 800-543-0407; in Cincinnati call 629-2050) for
instructions. You should be prepared to give the name in which the account is to
be established, the address, telephone number and taxpayer identification number
for the account, and the name of the bank which will wire the money.
You may receive a dividend on the day of your wire investment provided you
have given notice of your intention to make such investment to MGF Service Corp.
by 12:30 p.m., Eastern time, on that day. Your investment will be made at the
net asset value next determined after your wire is received together with the
account information indicated above. If the Trust does not receive timely and
complete account information, there may be a delay in the investment of your
money and any accrual of dividends. To make your initial wire purchase, you are
required to mail a completed account application to MGF Service Corp. Your bank
may impose a charge for sending your wire. There is presently no fee for receipt
of wired funds, but MGF Service Corp. reserves the right to charge shareholders
for this service upon thirty days' prior notice to shareholders.
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 to the "Short Term
Government Income Fund." Bank wires should be sent as outlined above. You may
also make additional investments at the Trust's offices at 312 Walnut Street,
21st Floor, Cincinnati, Ohio 45202. Each additional purchase request must
contain the name of your account and your account number to permit proper
crediting to your account. While there is no minimum amount required for
subsequent investments, the Trust reserves the right to impose such requirement.
CASH SWEEP PROGRAM. Cash accumulations in accounts with financial
institutions may be automatically invested in shares of the Short Term
Government Income Fund at the next determined net asset value on a day selected
by the institution or its customer, or when the account balance reaches a
predetermined dollar amount (e.g., $5,000).
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Participating institutions are responsible for prompt transmission of
orders relating to the program. Institutions participating in this program may
charge their customers fees for services relating to the program which would
reduce the customers' yield from an investment in the Fund. This
Prospectus should, therefore, be read together with any agreement between
the customer and the participating institution with regard to the services
provided, the fees charged for these services and any restrictions and
limitations imposed.
Intermediate Term Government Income Fund
Your initial investment in the Intermediate Term Government Income Fund
ordinarily must be at least $1,000 ($250 for tax-deferred retirement plans). You
may purchase additional shares through the Open Account Program described below.
You may open an account and make an initial investment through securities
dealers having a sales agreement with the Trust's principal underwriter, Midwest
Group Financial Services, Inc. (the "Adviser"). You may also make a direct
initial investment by sending a check and a completed account application form
to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should
be made payable to the "Intermediate Term Government Income Fund." An account
application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of
shares of the Intermediate Term Government Income Fund. Certificates
representing shares are not ordinarily issued, but you may receive a certificate
without charge by sending a written request to MGF Service Corp. Certificates
for fractional shares will not be issued. If a certificate has been issued to
you, you will not be permitted to redeem shares by check, to redeem or exchange
shares by telephone or to use the automatic withdrawal plan as to those shares.
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 Funds' account application contains
provisions in favor of the Trust, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone redemptions and exchanges and check
redemptions) made available to investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Trust or MGF Service Corp. in the transaction.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the
services described in this section to MGF Service Corp. at the address or
numbers listed below.
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After an initial investment, all investors are considered participants in
the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Intermediate Term Government Income Fund over a
period of years and permits the automatic reinvestment of dividends and
distributions of the Fund in additional shares without a sales load.
Under the Open Account Program, you may purchase and add shares to your
account at any time either through your securities dealer or by sending a check
to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. The check
should be made payable to the "Intermediate Term Government Income Fund."
Under the Open Account Program, you may also purchase shares of the
Intermediate Term Government Income Fund by bank wire. Please telephone MGF
Service Corp. (Nationwide call toll-free 800-543-0407; in Cincinnati call
629-2050) for instructions. 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.
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. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for selling
shares of the Intermediate Term Government Income Fund to a current shareholder,
such broker-dealer will receive the concessions described above with respect to
additional investments by the shareholder.
Sales Load Alternatives
The Intermediate Term Government Income Fund offers two classes of shares
which may be purchased at the election of the purchaser. The two classes of
shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all material respects except
that (i) Class C shares bear the expenses of higher distribution fees; (ii)
certain other class specific expenses will be borne solely by the class to which
such expenses are attributable, including transfer agent fees attributable to a
specific class of shares, printing and postage expenses related to preparing and
distributing materials to current shareholders of a specific class, registration
fees incurred by a specific class of shares, the expenses of administrative
personnel and services required to
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support the shareholders of a specific class, litigation or other legal expenses
relating to a class of shares, Trustees' fees or expenses incurred as a result
of issues relating to a specific class of shares and accounting fees and
expenses relating to a specific class of shares; and (iii) each class has
exclusive voting rights with respect to matters relating to its own distribution
arrangements. The net income attributable to Class C shares and the dividends
payable on Class C shares will be reduced by the amount of the incremental
expenses associated with the distribution fee. See "Distribution Plans." Shares
of the Intermediate Term Government Income Fund purchased prior to February 1,
1994 are Class A shares.
The Fund's alternative sales arrangements permit investors to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold his shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur a front-end sales load
and be subject to lower ongoing charges, as discussed below, or to have all of
the initial purchase price invested in the Fund with the investment thereafter
being subject to higher ongoing charges. A salesperson or any other person
entitled to receive any portion of a distribution fee may receive different
compensation for selling Class A or Class C shares.
As an illustration, investors who qualify for reduced sales loads as
described below, might elect the Class A sales load alternative because similar
sales load reductions are not available for purchases under the Class C sales
load alternative. Moreover, shares acquired under the Class A sales load
alternative would be subject to lower ongoing distribution fees as described
below. Investors not qualifying for reduced initial sales loads who expect to
maintain their investment for an extended period of time might also elect the
Class A sales load alternative because over time the accumulated continuing
distribution fees on Class C shares may exceed the difference in initial sales
loads between Class A and Class C shares. Again, however, such investors must
weigh this consideration against the fact that less of their funds will be
invested initially under the Class A sales load alternative. Furthermore, the
higher ongoing distribution fees will be offset to the extent any return is
realized on the additional funds initially invested under the Class C sales load
alternative.
Some investors might determine that it would be more advantageous to
utilize the Class C sales load alternative to have more of their funds invested
initially, although remaining subject to higher ongoing distribution fees and,
for a one-year period, being subject to a contingent deferred sales load. For
example, based on estimated fees and expenses, an investor
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subject to the maximum 2% initial sales load on Class A shares who elects to
reinvest dividends in additional shares would have to hold the investment in
Class A shares approximately 3 years before the accumulated ongoing distribution
fees on the alternative Class C shares would exceed the initial sales load plus
the accumulated ongoing distribution fees on Class A shares. In this example and
assuming the investment was maintained for more than 3 years, the investor might
consider purchasing Class A shares. This example does not take into account the
time value of money which reduces the impact of the higher ongoing Class C
distribution fees, fluctuations in net asset value or the effect of different
performance assumptions.
In addition to the compensation otherwise paid to securities dealers, the
Adviser may from time to time pay from its own resources additional cash bonuses
or other incentives to selected dealers in connection with the sale of shares of
the Intermediate Term Government Income Fund. On some occasions, such bonuses or
incentives may be conditioned upon the sale of a specified minimum dollar amount
of the shares of the Fund and/or other funds in the Midwest Group during a
specific period of time. Such bonuses or incentives may include financial
assistance to dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns and
other dealer-sponsored programs or events.
Class A Shares
Class A shares of the Intermediate Term Government Income Fund are sold on
a continuous basis at the public offering price next determined after receipt of
a purchase order by the Trust. Purchase orders received by dealers prior to 4:00
p.m., Eastern time, on any business day and transmitted to the Adviser by 5:00
p.m., Eastern time, that day are confirmed at the public offering price
determined as of the close of the regular session of trading on the New York
Stock Exchange on that day. It is the responsibility of dealers to transmit
properly completed orders so that they will be received by the Adviser by 5:00
p.m., Eastern time. Dealers may charge a fee for effecting purchase orders.
Direct purchase orders received by MGF Service Corp. by 4:00 p.m., Eastern time,
are confirmed at that day's public offering price. Direct investments received
by MGF Service Corp. after 4:00 p.m., Eastern time, and orders received from
dealers after 5:00 p.m., Eastern time, are confirmed at the public offering
price next determined on the following business day.
The public offering price of Class A shares applicable to investors whose
accounts are opened after January 31, 1995 is the
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next determined net asset value per share plus a sales load as shown in the
following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
Less than $100,000 2.00% 2.04% 1.80%
$100,000 but less than $250,000 1.50% 1.52% 1.35%
$250,000 but less than $500,000 1.00% 1.01% .90%
$500,000 but less than $1,000,000 .75% .76% .65%
$1,000,000 or more None* None*
Investors whose accounts were opened prior to February 1, 1995 are subject to a
different table of sales loads as follows:
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
Less than $500,000 1.00% 1.01% 1.00%
$500,000 but less than $1,000,000 .75% .76% .75%
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but
a contingent deferred sales load of .75% may apply with respect to
Class A shares if a commission was paid by the Adviser to a
participating unaffiliated dealer and the shares are redeemed within
twelve months from the date of purchase.
Under certain circumstances, the Adviser may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Adviser retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For initial purchases of Class A shares of $1,000,000 or more made after
October 1, 1995 and subsequent purchases further increasing the size of the
account, a dealer's commission of .75% of the purchase amount may be paid by the
Adviser to participating unaffiliated dealers through whom such purchases are
effected. In determining a dealer's eligibility for such commission, purchases
of Class A shares of the Intermediate Term
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Government Income Fund may be aggregated with concurrent purchases of Class A
shares of other Midwest Group funds. Dealers should contact the Adviser
concerning the applicability and calculation of the dealer's commission in the
case of combined purchases. An exchange from other Midwest Group funds will not
qualify for payment of the dealer's commission, unless such exchange is from a
Midwest Group fund with assets as to which a dealer's commission or similar
payment has not been previously paid. Redemptions of Class A shares may result
in the imposition of a contingent deferred sales load if the dealer's commission
described in this paragraph was paid in connection with the purchase of such
shares. See "Contingent Deferred Sales Charge for Certain Purchases of Class A
Shares" below.
REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing Class A shares of the load funds distributed by the
Adviser with the amount of his current purchases in order to take advantage of
the reduced sales loads set forth in the tables above. Purchases made in any
load fund distributed by the Adviser pursuant to a Letter of Intent may also be
eligible for the reduced sales loads. The minimum initial investment under a
Letter of Intent is $10,000. The load funds currently distributed by the Adviser
are listed in the Exchange Privilege section of this Prospectus. Shareholders
should contact MGF Service Corp. for information about the Right of Accumulation
and Letter of Intent.
PURCHASES AT NET ASSET VALUE. You may purchase Class A shares of the
Intermediate Term Government Income Fund at net asset value when the payment for
your investment represents the proceeds from the redemption of shares of any
other mutual fund which has a front-end sales load and is not distributed by the
Adviser. Your investment will qualify for this provision if the purchase price
of the shares of the other fund included a sales load and the redemption
occurred within one year of the purchase of such shares and no more than sixty
days prior to your purchase of Class A shares of the Fund. To make a purchase at
net asset value pursuant to this provision, you must submit photocopies of the
confirmations (or similar evidence) showing the purchase and redemption of
shares of the other fund. Your payment may be made with the redemption check
representing the proceeds of the shares redeemed, endorsed to the order of the
"Intermediate Term Government Income Fund." The redemption of shares of the
other fund is, for federal income tax purposes, a sale on which you may realize
a gain or loss. These provisions may be modified or terminated at any time.
Contact your securities dealer or the Trust for further information.
Banks, bank trust departments and savings and loan associations, in their
fiduciary capacity or for their own accounts, may also purchase Class A shares
of the Intermediate Term Government Income Fund at net asset value. To the
extent
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permitted by regulatory authorities, a bank trust department may charge fees to
clients for whose account it purchases shares at net asset value. Federal and
state credit unions may also purchase Class A shares at net asset value.
In addition, Class A shares of the Intermediate Term Government Income
Fund may be purchased at net asset value by broker-dealers who have a sales
agreement with the Adviser, and their registered personnel and employees,
including members of the immediate families of such registered personnel and
employees.
Clients of investment advisers and financial planners may also purchase
Class A shares of the Intermediate Term Government Income Fund at net asset
value if their investment adviser or financial planner has made arrangements to
permit them to do so with the Trust and the Adviser. The investment adviser or
financial planner must notify MGF Service Corp. that an investment qualifies as
a purchase at net asset value.
Trustees, directors, officers and employees of the Trust, the Adviser or
MGF Service Corp., including members of the immediate family of such individuals
and employee benefit plans established by such entities, may also purchase Class
A shares of the Intermediate Term Government Income Fund at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES. A
contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Intermediate Term Government Income Fund (or shares into which
such Class A shares were exchanged) purchased at net asset value in amounts
totaling $1 million or more, if the dealer's commission described above was paid
by the Adviser and the shares are redeemed within twelve months from the date of
purchase. The contingent deferred sales load will be paid to the Adviser and
will be equal to .75% of the lesser of (1) the net asset value at the time of
purchase of the Class A shares being redeemed or (2) the net asset value of such
Class A shares at the time of redemption. In determining whether the contingent
deferred sales load is payable, it is assumed that shares not subject to the
contingent deferred sales load are the first redeemed followed by other shares
held for the longest period of time. The contingent deferred sales load will not
be imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. If a purchase of
Class A shares is subject to the contingent deferred sales load, the investor
will be so notified on the confirmation for such purchase.
Redemptions of such Class A shares of the Intermediate Term Government
Income Fund held for at least 12 months will not be
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subject to the contingent deferred sales load and an exchange of such Class A
shares into another Midwest Group fund is not treated as a redemption and will
not trigger the imposition of the contingent deferred sales load at the time of
such exchange. A fund will "tack" the period for which such Class A shares being
exchanged were held onto the holding period of the acquired shares for purposes
of determining if a contingent deferred sales load is applicable in the event
that the acquired shares are redeemed following the exchange; however, the
period of time that the redemption proceeds of such Class A shares are held in a
money market fund will not count toward the holding period for determining
whether a contingent deferred sales load is applicable. See "Exchange
Privilege."
The contingent deferred sales load is currently waived for any partial or
complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Adviser may
require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the applicable sales
load and for purposes of the Letter of Intent and Right of Accumulation
privileges, a purchaser includes an individual, his spouse and their children
under the age of 21, purchasing shares for his or their own account; or a
trustee or other fiduciary purchasing shares for a single fiduciary account
although more than one beneficiary is involved; or employees of a common
employer, provided that economies of scale are realized through remittances from
a single source and quarterly confirmation of such purchases; or an organized
group, provided that the purchases are made through a central administration, or
a single dealer, or by other means which result in economy of sales effort or
expense. Contact MGF Service Corp. for additional information concerning
purchases at net asset value or at reduced sales loads.
Class C Shares
Class C shares of the Intermediate Term Government Income Fund are sold on
a continuous basis at the net asset value next determined after receipt of a
purchase order by the Trust. Purchase orders received by dealers prior to 4:00
p.m., Eastern time, on any business day and transmitted to the Adviser by 5:00
p.m., Eastern time, that day are confirmed at the net asset value determined as
of the close of the regular session of trading on the New York Stock Exchange on
that day. It is the responsibility of dealers to transmit properly completed
orders
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so that they will be received by the Adviser by 5:00 p.m., Eastern time. Dealers
may charge a fee for effecting purchase orders. Direct purchase orders received
by MGF Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's net
asset value. Direct investments received by MGF Service Corp. after 4:00 p.m.,
Eastern time, and orders received from dealers after 5:00 p.m., Eastern time,
are confirmed at the net asset value next determined on the following business
day.
A contingent deferred sales load is imposed on Class C shares of the
Intermediate Term Government Income Fund if an investor redeems an amount which
causes the current value of the investor's account to fall below the total
dollar amount of purchase payments subject to the deferred sales load, except
that no such charge is imposed if the shares redeemed have been acquired through
the reinvestment of dividends or capital gains distributions or to the extent
the amount redeemed is derived from increases in the value of the account above
the amount of purchase payments subject to the deferred sales load.
Whether a contingent deferred sales load is imposed will depend on the
amount of time since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the contingent deferred sales load
according to the following schedule:
Year Since Purchase Contingent Deferred
Payment was Made Sales Load
First Year 1%
Thereafter None
In determining whether a contingent deferred sales load is payable, it is
assumed that the purchase payment from which the redemption is made is the
earliest purchase payment (from which a redemption or exchange has not already
been effected). If the earliest purchase from which a redemption has not yet
been effected was made within one year before the redemption, then a deferred
sales load at the rate of 1% will be imposed.
The following example will illustrate the operation of the contingent
deferred sales load. Assume that an individual opens an account and purchases
1,000 shares at $10 per share and that six months later the net asset value per
share is $12 and, during such time, the investor has acquired 50 additional
shares through reinvestment of distributions. If at such time the investor
should redeem 450 shares (proceeds of $5,400), 50 shares will not be subject to
the load because of dividend reinvestment. With respect to the remaining 400
shares, the load is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $4,000 of the
$5,400
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redemption proceeds will be charged the load. At the rate of 1%, the contingent
deferred sales load would be $40. In determining whether an amount is available
for redemption without incurring a deferred sales load, the purchase payments
made for all Class C shares of the Intermediate Term Government Income Fund in
the shareholder's account are aggregated, and the current value of all such
shares is aggregated.
All sales loads imposed on redemptions are paid to the Adviser. The
Adviser intends to pay a commission of 1% of the purchase amount to
participating brokers at the time the investor purchases Class C shares of the
Intermediate Term Government Income Fund.
The contingent deferred sales load is currently waived for any partial or
complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Adviser may
require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
SHAREHOLDER SERVICES
Contact MGF Service Corp. (Nationwide call toll-free 800-543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
Automatic Withdrawal Plan
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional Class A shares of the
Intermediate Term Government Income Fund while the plan is in effect are
generally undesirable because a sales load is incurred whenever purchases are
made.
Tax-Deferred Retirement Plans
Shares of either Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
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-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public
school systems, hospitals, colleges and other non-
profit organizations meeting certain requirements of
the Internal Revenue Code
Direct Deposit Plans
Shares of either Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Funds.
Automatic Investment Plan
You may make automatic monthly investments in either Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. MGF Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Funds.
Reinvestment Privilege
If you have redeemed shares of the Intermediate Term Government Income
Fund, you may reinvest all or part of the proceeds without any additional sales
load. This reinvestment must occur within ninety days of the redemption and the
privilege may only be exercised once per year.
HOW TO REDEEM SHARES
You may redeem shares of either 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 a proper redemption request in the form
described below, less any applicable contingent deferred sales load. 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 Funds by
certified check or wire.
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A contingent deferred sales load may apply to a redemption of Class C
shares of the Intermediate Term Government Income Fund or to a redemption of
certain Class A shares of the Fund purchased at net asset value. See "How to
Purchase Shares." A contingent deferred sales load may be imposed on a
redemption of shares of the Short Term Government Income 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.
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 normally be sent by mail or by wire within one business
day (but not later than three business days) after receipt of your telephone
instructions. Any redemption requests by telephone must be received in proper
form prior to 12:30 p.m., Eastern time, on any business day in order for payment
by wire to be made that day. IRA accounts are not redeemable by telephone.
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
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include, among others, requiring forms of personal identification prior to
acting upon telephone instructions, providing written confirmation of the
transactions and/or tape recording telephone instructions.
BY MAIL. You may redeem any number of shares from your account by sending
a written request to MGF Service Corp. The request must state the number of
shares or the dollar amount to be redeemed and your account number. The request
must be signed exactly as your name appears on the Trust's account records. If
the shares to be redeemed have a value of $25,000 or more, your signature must
be guaranteed by any of the eligible guarantor institutions outlined above.
Written redemption requests may also direct that the proceeds be deposited
directly in the bank account or brokerage account designated on your account
application for telephone redemptions. Proceeds of redemptions requested by mail
are mailed within three business days following receipt of instructions in
proper form.
BY CHECK. You may establish a special checking account with
either 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 Intermediate Term
Government Income 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
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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 of the Intermediate Term Government Income Fund should be
aware that writing a check (a redemption of shares) is a taxable event. Shares
of the Intermediate Term Government Income Fund for which certificates have been
issued may not be redeemed by check. Shareholders who invest in the Short Term
Government Income Fund through a cash sweep or similar program with a financial
institution are not eligible for the checkwriting privilege.
THROUGH BROKER-DEALERS. You may also redeem shares of the Intermediate
Term Government Income Fund by placing a wire redemption request through a
securities broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
ADDITIONAL REDEMPTION INFORMATION. If your instructions request a
redemption by wire, you will be charged an $8 processing fee by the Funds'
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.
If a certificate for shares of the Intermediate Term Government Income
Fund was issued, it must be delivered to MGF Service Corp., or the dealer in the
case of a wire redemption, duly endorsed or accompanied by a duly endorsed stock
power, with the signature guaranteed by any of the eligible guarantor
institutions outlined above.
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
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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 $1,000 (based on
actual amounts invested including any sales load paid, unaffected by market
fluctuations), or $250 in the case of tax-deferred retirement plans, 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 either Fund and of any other fund of the Midwest Group of Funds
may be exchanged for each other.
Shares of the Short Term Government Income Fund and Class A shares of the
Intermediate Term Government Income Fund which are not subject to a contingent
deferred sales load may be exchanged for Class A shares of any other fund and
for shares of any other fund which offers only one class of shares (provided
such shares are not subject to a contingent deferred sales load). 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.
Class C shares of the Intermediate Term Government Income Fund, as well
as Class A shares of the Fund subject to a contingent deferred sales load, may
be exchanged, on the basis of relative net asset value per share, for shares of
any other fund which imposes a contingent deferred sales load and for shares of
any fund which is a money market fund. A fund will "tack" the period for which
the shares being exchanged were held onto the holding period of the acquired
shares for purposes of determining if a contingent deferred sales load is
applicable in the event that the acquired shares are redeemed following the
exchange. The period of time that shares are held in a money market fund will
not count toward the holding period for determining whether a contingent
deferred sales load is applicable.
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.
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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
*Tax-Free Intermediate Term Midwest Trust
Fund Short Term Government Income Fund
*Ohio Insured Tax-Free Fund Institutional Government Income Fund
*Intermediate Term Government Income
Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to MGF Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by visiting the
Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. An
exchange will be effected at the next determined net asset value (or offering
price, if sales load is applicable) after receipt of a request by MGF Service
Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact MGF Service Corp. to obtain a
current prospectus for any of the other funds in the Midwest Group and more
information about exchanges among the Midwest Group of Funds.
DIVIDENDS AND DISTRIBUTIONS
All of the net investment income of each Fund is declared as a dividend to
shareholders of record on each business day of the Trust and paid monthly. Each
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.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
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Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option 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.
An investor in the Intermediate Term Government Income Fund who has
received in cash any dividend or capital gains distribution may return the
distribution within thirty days of the distribution date to MGF Service Corp.
for reinvestment at the net asset value next determined after its return. The
investor or his dealer must notify MGF Service Corp. that a distribution is
being reinvested pursuant to this provision.
TAXES
Each Fund has qualified in all prior years and intends to continue 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.
Each Fund intends to distribute substantially all of its net investment
income and any net realized capital gains to its shareholders. Distributions of
net investment income as well as from net realized short-term capital gains, if
any, are taxable as ordinary income. Since the Funds' 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. Redemptions
and exchanges of shares of the Intermediate Term Government Income Fund are
taxable events on which a shareholder may realize a gain or loss.
The Funds will mail to each of their shareholders a statement
indicating the amount and federal income tax status of
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all distributions made during the year. In addition to federal taxes,
shareholders of the Funds may be subject to state and local taxes on
distributions. Shareholders should consult their tax advisors about the tax
effect of distributions and withdrawals from the Funds and the use of the
Automatic Withdrawal Plan and the Exchange Privilege. The tax consequences
described in this section apply whether distributions are taken in cash or
reinvested in additional shares.
OPERATION OF THE FUNDS
The Funds are diversified series of Midwest Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 7, 1980. 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 Funds.
The Trust retains Midwest Group Financial Services, Inc., 312 Walnut
Street, Cincinnati, Ohio 45202 (the "Adviser"), to manage the Funds' investments
and their business affairs. The Adviser was organized in 1974 and is also the
investment adviser to three other series of the Trust, six series of Midwest
Group Tax Free Trust and four series of Midwest Strategic Trust. Each Fund pays
the Adviser a fee equal to the annual rate of .5% of the average value of its
daily net assets up to $50 million; .45% of such assets from $50 million to $150
million; .4% of such assets from $150 million to $250 million; and .375% of such
assets in excess of $250 million.
Scott Weston, Assistant Vice President-Investments of the
Adviser, is primarily responsible for managing the portfolio of each Fund. Mr.
Weston has been employed by the Adviser since 1992 and has been managing each
Fund's portfolio since March 1996. Mr. Weston was previously employed by Adex
International, Inc. as a cost control manager.
The Funds are 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 Funds' shares (see
"Distribution Plans"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Funds, 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
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proxy solicitations, and such extraordinary or non-recurring expenses as may
arise, including litigation to which the Funds may be a party and
indemnification of the Trust's officers and Trustees with respect thereto.
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati,
Ohio, to serve as the Funds' transfer agent, dividend paying agent and
shareholder service agent.
MGF Service Corp. also provides accounting and pricing services
to the Funds. MGF Service Corp. receives a monthly fee from each 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 Funds. 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 Funds) pays MGF Service Corp. a fee for these administrative services
equal to the annual rate of .1% of the average value of each Fund's daily net
assets.
The Adviser serves as principal underwriter for the Funds and, as such,
is the exclusive agent for the distribution of shares of the Funds. 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.
The Adviser and MGF Service Corp. are each a wholly-owned subdisidary
of Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Pursuant to an agreement dated December 10, 1996
between the shareholders of Leshner Financial, Inc. and Countrywide Credit
Industries, Inc. ("CCI"), CCI has agreed to acquire all of the outstanding
common stock of Leshner Financial, Inc. in exchange for newly issued common
stock of CCI. Following such acquisition, which is expected to be consummated on
or about February 28, 1997, Leshner Financial, Inc. will be a wholly-owned
subsidiary of CCI. CCI is a New York Stock Exchange listed company principally
engaged in residential mortgage lending.
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
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Funds as a factor in the selection of brokers and dealers to execute portfolio
transactions of the Funds. Subject to the requirements of the Investment Company
Act of 1940 and procedures adopted by the Board of Trustees, the Funds 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 each Fund have equal voting rights and liquidation rights.
Each Fund shall vote separately on matters submitted to a vote of the
shareholders except in matters where a vote of all series of the Trust in the
aggregate is required by the Investment Company Act of 1940 or otherwise. Each
class of shares of the Intermediate Term Government Income Fund shall vote
separately on matters relating to its plan of distribution pursuant to Rule
12b-1 (see "Distribution Plans"). 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.
Amivest Corporation, P.O. Box 370 Cooper Station, New York, New York,
may be deemed to control the Intermediate Term Government Income Fund by virtue
of the fact that it owns of record more than 25% of the Fund's shares as of the
date of this Prospectus.
DISTRIBUTION PLANS
CLASS A SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Short Term Government Income Fund and Class A shares of the
Intermediate Term Government Income Fund have adopted a plan of distribution
(the "Class A Plan") under which such shares may directly incur or reimburse the
Adviser for certain distribution-related expenses, including payments to
securities dealers and others who are engaged in the sale of such shares and who
may be advising investors regarding the purchase, sale or retention of such
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
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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 Funds; 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 such shares.
Pursuant to the Class A Plan, the Funds may make payments to dealers
and other persons, including the Adviser and its affiliates, who may be advising
investors regarding the purchase, sale or retention of shares of the Funds. For
the fiscal year ended September 30, 1996, the Short Term Government Income Fund
and Class A shares of the Intermediate Term Government Income Fund paid $89,000
and $90,334, respectively, to the Adviser to reimburse it for payments made to
dealers and other persons who may be advising shareholders in this regard.
The annual limitation for payment of expenses pursuant to the Class A
Plan is .35% of the Short Term Government Income Fund's average daily net assets
and .35% of the Intermediate Term Government Income Fund's average daily net
assets allocable to Class A shares. Unreimbursed expenditures will not be
carried over from year to year. In the event the Class A Plan is terminated by a
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Adviser after the date the Class A Plan
terminates.
CLASS C SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Intermediate Term Government Income Fund has adopted a plan of
distribution (the "Class C Plan") which provides for two categories of payments.
First, the Class C Plan provides for the payment to the Adviser of an account
maintenance fee, in an amount equal to an annual rate of .25% of the Fund's
average daily net assets allocable to Class C shares, which may be paid to other
dealers based on the average value of such shares owned by clients of such
dealers. In addition, the Class C shares may directly incur or reimburse the
Adviser in an amount not to exceed .75% per annum of the Fund's average daily
net assets allocable to Class C shares for expenses incurred in the distribution
and promotion of the Fund's Class C shares, including payments to securities
dealers and others who are engaged in the sale of such shares and who may be
advising investors regarding the purchase, sale or retention of such 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
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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 such shares.
Unreimbursed expenditures will not be carried over from year to year.
In the event the Class C Plan is terminated by the Intermediate Term Government
Income Fund in accordance with its terms, the Fund will not be required to make
any payments for expenses incurred by the Adviser after the date the Class C
Plan terminates. The Adviser may make payments to dealers and other persons in
an amount up to .75% per annum of the average value of Class C shares owned by
their clients, in addition to the .25% account maintenance fee described above.
GENERAL. Pursuant to the Plans, the Funds 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
Funds or their shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Funds may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Funds, no preference will be shown for
such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules 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.
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CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
On each day that the Trust is open for business, the share price (net
asset value) of the Short Term Government Income Fund's shares is determined as
of 12:30 p.m. and 4:00 p.m., Eastern time. The share price of Class C shares and
the public offering price (net asset value plus applicable sales load) of Class
A shares of the Intermediate Term Government Income 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. 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 a Fund's investments that its net asset value might be
materially affected. The net asset value per share of each Fund is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by the
total number of shares outstanding of the Fund, rounded to the nearest cent.
The Short Term Government Income Fund's portfolio securities are valued
on an amortized cost basis. In connection with the use of the amortized cost
method of valuation, the Short Term Government Income Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less, purchases only
United States dollar-denominated securities having remaining maturities of
thirteen months or less and invests only in securities determined by the Board
of Trustees to meet the Fund's quality standards and to present minimal credit
risks. Other assets of the Fund are valued at their fair value as determined in
good faith in accordance with consistently applied procedures established by and
under the general supervision of the Board of Trustees. It is anticipated, but
there is no assurance, that the use of the amortized cost method of valuation
will enable the Short Term Government Income Fund to maintain a stable net asset
value per share of $1.
The Intermediate Term Government Income Fund's portfolio securities 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) 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 Intermediate Term Government Income Fund will
fluctuate with the value of the securities it holds.
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PERFORMANCE INFORMATION
From time to time, the Short Term Government Income Fund may advertise
its "current yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"current yield" of the Short Term Government Income Fund refers to the income
generated by an investment in the Fund over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because of
the compounding effect of this assumed reinvestment.
From time to time, the Intermediate Term Government Income 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. Total
return and yield are computed separately for Class A and Class C shares. The
yield of Class A shares is expected to be higher than the yield of Class C
shares due to the higher distribution fees imposed on Class C shares.
The "average annual total return" of the Intermediate Term Government
Income 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 and, for Class A shares, the deduction of the
current maximum sales load from the initial investment. The Intermediate Term
Government Income 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." These
nonstandardized returns do not include the effect of the applicable sales load
which, if included, would reduce total return. A nonstandardized quotation
- 40 -
<PAGE>
of total return will always be accompanied by the Fund's "average annual total
return" as described above.
The "yield" of the Intermediate Term Government Income 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.
From time to time, the Funds may advertise their 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 Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators. In connection with a ranking, the Funds may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. Each Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defense posture, in light of
the Adviser's view of current or past market conditions or historical trends.
Further information about the Intermediate Term Government Income
Fund's performance is contained in the Trust's annual report which can be
obtained by shareholders at no charge by calling MGF Service Corp. (Nationwide
call toll-free 800-543- 0407; in Cincinnati call 629-2050) or by writing to the
Trust at the address on the front of this Prospectus.
<PAGE>
- 41 -
ACCOUNT APPLICATION (check appropriate Fund)
Please mail account application to:
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
o SHORT TERM GOVT. INCOME FUND (0) $________________
INTERMEDIATE TERM GOVT. INCOME FUND
o A SHARES (1) $________________
o C SHARES (15) $________________
ACCOUNT NO._______________________
(For Fund Use Only)
FOR BROKER/DEALER USE ONLY
Firm Name:_______________________
Home Office Address:_____________
Branch Address:__________________
Rep Name & No.:__________________
Rep Signature:___________________
- - ---------------------------------------------------------------------------
o Check or draft enclosed payable to the Fund(s) designated above.
o Bank Wire From:___________________________________________________
o Exchange From:____________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX L.D.#
_____________________________________ ____________________________
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minor's S.S.#)
_____________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other________
ADDRESS PHONE
_____________________________________ ( )_____________________
Street or P.O. Box Business Phone
_____________________________________ ( )_____________________
City State Zip Home Phone
Check Appropriate Box: o Individual o Joint Tenant (Right of survivorship
presumed) o Partnership o Corporation o Trust o Custodial o Non-Profit
o Other
Occupation and Employer Name/Address____________________________________
Are you an associated person of an NASD member? o Yes o No
- - ---------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that
the Taxpayer Identification Number listed above is my correct number. The
Internal Revenue Service does not require your consent to any provision of this
document other than the certifications required to avoid backup withholding.)
Check box if appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends;
or the Internal Revenue Service has notified me that I am no longer subject
to backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do
not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains distributions
reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid
in cash.
- - ---------------------------------------------------------------------------
REDEMPTION OPTIONS
I (we) authorize the Trust or MGF Service Corp. to act upon instructions
received by telephone, or upon receipt of and in the amounts of checks as
described below (if checkwriting is selected), to have amounts withdrawn from
my (our) account in any fund in the Midwest Group (see prospectus for
limitations on this option) and:
o WIRED ($1,000 minimum OR MAILED to my (our) bank account designated below.
I (we) further authorize the used of automated cash transfers to and from
the account designated below.
NOTE: For wire redemptions, the indicated bank should be a commercial bank.
Please attach a voided check for the account.
Bank Account Number____________________ Bank Routing Transit Number________
Name of Account Holder_______________________________________________________
Bank Name______________________________ Bank Address_______________________
City State
o CHECKWRITING (A signature card must be completed)
...to deposit the proceeds of such redemptions in the applicable Midwest
Group Pay Through Draft Account (PTDA) or otherwise arrange for application
of such proceeds to payment of said checks. I (we) authorize the persons
whose signatures appear on the PTDA signature card to draw checks on the PTDA
and to cause the redemption of my (our) shares of the Trust. I (we) agree
to be bound by the Rules and Regulations for the Midwest Group Pay Through
Draft Account as such Rules and Regulations may be amended from time to time
- - ---------------------------------------------------------------------------
REDUCED SALES CHARGES (INTERMEDIATE TERM GOVERNMENT INCOME FUND'S CLASS A
SHARES ONLY)
Right of Accumulation: I apply for Right of Accumulation subject to the
Agent's confirmation of the following holdings of eligible load funds of the
Midwest Group of Funds.
ACCOUNT NUMBER/NAME ACCOUNT NUMBER/NAME
______________________________________ _________________________________
______________________________________ _________________________________
LETTER OF INTENT: (Complete the Right of Accumulation section if related
accounts are being applied to your Letter of Intent.)
o l agree to the Letter of Intent in the current Prospectus of Midwest
Trust. Although I am not obligated to purchase, and the Trust is not
obligated to sell, I intend to invest over a 13 month period beginning
______________________ 19 _______ (Purchase Date of not more than 90 days
prior to this Letter) an aggregate amount in the load funds of the Midwest
Group of Funds at least equal to (check appropriate box):
o $100,000 o $250,000 o $500,000 o $1,000,000
- - ---------------------------------------------------------------------------
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Funds' current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints MGF Service Corp. as his agent to enter orders for shares whether by
direct purchase or exchange, to receive dividends and distributions for
automatic reinvestment in additional shares of the Funds for credit to the
investor's account and to surrender for redemption shares held in the
investor's account in accordance with any of the procedures elected above or
for payment of service charges incurred by the investor. The investor further
agrees that MGF Service Corp. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this
Application. The investor hereby ratifies any instructions given pursuant to
this Application and for himself and his successors and assigns does hereby
release MGF Service Corp., Midwest Trust, Midwest Group Financial Services,
Inc., and their respective officers, employees, agents and affiliates from
any and all liability in the performance of the acts instructed herein.
Neither the Trust, MGF Service Corp., nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to
be genuine or for any loss, damage, cost or expense in acting on such
telephone instructions. The investor(s) will bear the risk of any such loss.
The Trust or MGF Service Corp., or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or MGF
Service Corp. do not employ such procedures, they may be liable for losses
due to unauthorized or fraudulent instructions. These procedures may
include, among others, requiring forms of personal identification prior to
acting upon telephone instructions, providing written confirmation of the
transactions and/or tape recording telephone instructions.
_______________________________________________________________
Signature of Individual Owner, Corporate Officer, Trustee, etc.
_______________________________________________________________
Signature of Joint Owner, if Any
_______________________________________________________________
Title of Corporate Officer, Trustee, etc.
_______________________________________________________________
Date
NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE THE
RESOLUTION FORM ON THE REVERSE SIDE.
UNLESS OTHERWISE SPECIFIED, EACH JOINT OWNER SHALL HAVE FULL AUTHORITY TO ACT
ON BEHALF OF THE ACCOUNT.
- - ---------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (COMPLETE FOR INVESTMENTS INTO THE FUND(S))
The Automatic Investment Plan is available for all established accounts of
Midwest Trust. There is no charge for this service, and it offers the
convenience of automatic investing on a regular basis. The minimum
investment is $50.00 per month. For an account that is opened by using this
Plan, the minimum initial and subsequent investments must be $50.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be
discontinued by the shareholder at any time.
Please invest $ _________________per month in (Check applicable Fund)
ABA Routing Number_____________________
o Short Term Govt. Income Fund o Intermediate Term Govt. Income Fund
FI Account Number______________________
o Checking Account o Savings Account
_______________________________________
Name of Financial Institution (FI)
Please make my automatic investment on:
o the last business day of each month
o the 15th day of each month
o both the 15th and last business day
_______________________________________
City State
X______________________________________ X_________________________________
(Signature of Depositor EXACTLY as (Signature of Joint Tenant -
it appears on FI Records) if any)
(Joint Signatures are required when bank account is in joint names. Please
sign exactly as signature appears on your FI's records.)
PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.
INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which MGF Service Corp.
("MGF") has put into effect, by which amounts, determined by your depositor,
payable to the applicable Fund designated above, for purchase of shares of
said Fund, are collected by MGF, MGF hereby agrees:
MGF will indemnify and hold you harmless from any liability to any person
or persons whatsoever arising out of the payment by you of any amount drawn
by the Funds to their own order on the account of your depositor or from
any liability to any person whatsoever arising out of the dishonor
by you whether with or without cause or intentionally or inadvertently,
of any such amount. MGF will defend, at its own cost and expense,
any action which might be brought against you by any person or persons
whatsoever because of your actions taken pursuant to the foregoing
request or in any manner arising by reason of your participation in this
arrangement. MGF will refund to you any amount erroneously paid by you
to the Funds if the claim for the amount of such erroneous payment is made by
you within six (6) months from the date of such erroneous payment; your
participation in this arrangement and that of the Funds may be terminated by
thirty (30) days written notice from either party to the other.
- - ---------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND(S))
This is an authorization for you to withdraw $_________________________from
my mutual fund account beginning the last business day of the month of
_____________________.
Please Indicate Withdrawal Schedule (Check One):
Please indicate which Fund: o Short Term Govt. Income Fund o Intermediate
Term Govt. Income Fund
o MONTHLY -- Withdrawals will be made on the last business day of each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and
12/31.
o ANNUALLY -- Please make withdrawals on the last business day of the month
of:___________________________.
Please Select Payment Method (Check One):
o EXCHANGE: Please exchange the withdrawal proceeds into another Midwest
account number: ____ ____ -- ____ ____ ____ ____ ____ ____ -- ____
o CHECK: Please mail a check for my withdrawal proceeds to the mailing
address on this account.
o ACH TRANSFER: Please send my withdrawal proceeds via ACH transfer to my
bank checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there is
no charge.
o BANK WIRE: Please send my withdrawal proceeds via bank wire, to the
account indicated below. I understand that the wire will be completed in one
business day and that there is an $8.00 fee.
PLEASE ATTACH A VOIDED CHECK FOR ACH OR BANK WIRE
___________________________________________________________________________
Bank Name Bank Address
___________________________________________________________________________
Bank ABA# Account # Account Name
O SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee_____________________________________________________________
Please send to:___________________________________________________________
Street address City State Zip
- - ---------------------------------------------------------------------------
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other
Organizations)
RESOLVED: That this corporation or organization become a shareholder of
Midwest Trust (the Trust) and that
__________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf
of the corporation or organization and to take any action for it as may be
necessary or appropriate with respect to its shareholder account with the
Trust, 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
applicable series of the Trust, to establish or acknowledge terms and
conditions governing the redemption of said shares and to otherwise implement
the privileges elected on the Application, and it is
(If checkwriting privilege is not desired, please cross out the following
resolution.)
FURTHER RESOLVED: That the corporation or organization participate in the
Midwest Group Pay Through Draft Account (PTDA) and that until otherwise
ordered in writing, MGF Service Corp. is authorized to make redemptions of
shares held by the corporation or organization, and to make payment from PTDA
upon and according to the check, draft, note or order of this corporation or
organization when signed by
___________________________________________________________________________
and to receive the same when so signed to the credit of, or payment to, the
payee or any other holder without inquiry as to the circumstances of issue or
the disposition or proceeds, whether drawn to the individual order or
tendered in payment of individual obligations of the persons above named or
other officers of this corporation or organization or otherwise.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
__________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of___________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on ____________________ at
which a quorum was present and acting throughout, and that the same are now
in full force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the
foregoing resolutions.
NAME TITLE
______________________________________ _________________________________
______________________________________ _________________________________
______________________________________ _________________________________
Witness my hand and seal of the corporation or organization
this______________________day of________________________________, 19_______
______________________________________ _________________________________
*Secretary-Clerk Other Authorized Officer (if
required)
*If the Secretary or other recording officer is authorized to act by the
above resolutions, this certificate must also be signed by another officer.
<PAGE>
MIDWEST TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
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
- 42 -
<PAGE>
TABLE OF CONTENTS
Expense Information. . . . . . . . . . . . . . . . . . . . .
Financial Highlights. . . . . .. . . . . . . . . . . . . . .
Investment Objectives. . . . . . . . . . . . . . . . . . . .
Investment Policies. . . . . . . . . . . . . . . . . . . . .
How to Purchase Shares . . . . . . . . . . . . . . . . . . .
Shareholder Services . . . . . . . . . . . . . . . . . . . .
How to Redeem Shares . . . . . . . . . . . . . . . . . . . .
Exchange Privilege . . . . . . . . . . . . . . . . . . . . .
Dividends and Distributions. . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation of the Funds . . . . . . . . . . . . . . . . . . .
Distribution Plans . . . . . . . . . . . . . . . . . . . . .
Calculation of Share Price and Public Offering Price . . . .
Performance Information. . . . . . . . . . . . . . . . . . .
- -----------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 43 -
<PAGE>
PROSPECTUS
February 1, 1997
Midwest Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
INSTITUTIONAL GOVERNMENT INCOME FUND
The Institutional Government Income Fund (the "Fund"), a separate
series of Midwest Trust, seeks high current income, consistent with protection
of capital, by investing primarily in short-term obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies or instrumentalities.
The Fund is designed primarily for institutions as an economical and
convenient means for the investment of short-term funds. Such institutions
include banks and trust companies, savings institutions, corporations,
investment bankers and brokers, insurance companies, pension funds, employee
benefit plans and educational, religious and charitable institutions. The
minimum initial purchase is $100,000 per investor.
The Fund's portfolio securities are valued on an amortized cost basis.
Fund shares are neither insured nor guaranteed by the United States Government
or any other entity. It is anticipated, but there is no assurance, that the Fund
will maintain a stable net asset value per share of $1.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or
any other agency.
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, 1997 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling one of the numbers listed below.
- ------------------------------------------------------------------------------
For Information or Assistance in Opening An Account, Please Call:
Nationwide (Toll-Free)............................................800-543-0407
Cincinnati........................................................513-629-2050
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Exchange Fee None
Redemption Fee None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees After Waivers .11%(A)
12b-1 Fees .01%(B)
Other Expenses .28%
----
Total Fund Operating Expenses After Waivers .40%(C)
====
(A) Absent waivers of management fees, such fees would have been .20% for
the fiscal year ended September 30, 1996.
(B) The Fund may incur 12b-1 fees in an amount up to .10% of its average
net assets.
(C) Absent waivers of management fees, total Fund operating expenses would
have been .49% for the fiscal year ended September 30, 1996.
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 amounts incurred during the most recent 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
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 $ 4
3 Years $13
5 Years $22
10 Years $51
Institutions who utilize the transfer agent's subaccounting system
to minimize their internal recordkeeping requirements will be charged a
subaccounting fee based on the level of services. See "Subaccounting
Services."
- 2 -
<PAGE>
FINANCIAL HIGHLIGHTS
The following information, which has been audited by Arthur Andersen LLP,
is an integral part of the audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of
September 30, 1996 and related auditors' report appear in the Statement of
Additional Information of the Fund, which can be obtained by shareholders at no
charge by calling MGF Service Corp. (Nationwide call toll-free 800-543-0407, in
Cincinnati call 629-2050) or by writing to the Trust at the address on the front
of this Prospectus.
<TABLE>
Per Share Data for a Share Outstanding Throughout Each Period
FROM DATE OF
PUBLIC
OFFERING
(MAY 23, 1988)
THROUGH
YEAR ENDED SEPTEMBER 30, SEPT.30,
1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------ ------ ------ ------ ------ ------ ------ -----
Net investment income 0.051 0.053 0.034 0.029 0.040 0.065 0.081 0.087 0.025
------- ------ ------ ------ ------ ------ ------ ------ -----
Dividends from net investment income (0.051) (0.053) (0.034) (0.029) (0.040) (0.065) (0.081) (0.087) (0.025)
------- ------ ------ ------ ------ ------ ------ ------ -----
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ====== ======= ====== ====== ====== ====== ====== =====
Total return 5.18% 5.42% 3.43% 2.96% 4.08% 6.61% 8.31% 9.07% 7.42%(B)
====== ====== ====== ====== ===== ====== ======= ====== =======
Net assets at end of period (000's) $39,382 $36,009 $41,769 $34,610 $43,432 $62,313 $97,727 $121,826 $70,489
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average net assets(A) 0.40% 0.40% 0.40% 0.40% 0.37% 0.35% 0.33% 0.32% 0.30%(B)
Ratio of net investment income
to average net assets 5.06% 5.30% 3.41% 2.92% 4.04% 6.50% 8.04% 8.74% 7.39%(B)
(A) Absent fee waivers by the Adviser, the ratios of expenses to average net assets would have been 0.49%, 0.42%, 0.42%, 0.48%,
0.43%, 0.36% and 0.34% for the years ended September 30, 1996, 1995, 1994, 1993, 1992, 1991 and 1989, respectively.
(B) Annualized.
</TABLE>
<PAGE>
- 3 -
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a series of Midwest Trust (the "Trust"). The investment
objective of the Fund is to seek high current income, consistent with protection
of capital. The Fund seeks to achieve its investment objective by investing
primarily in obligations issued or guaranteed as to principal and interest by
the United States Government, its agencies or instrumentalities ("U.S.
Government obligations" described below), maturing within thirteen months or
less with a dollar-weighted average portfolio maturity of 90 days or less.
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 may be changed by the Board of Trustees without shareholder
approval, but only after notification has been given to shareholders and after
this Prospectus has been revised accordingly. If there is a change in the Fund's
investment objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs. 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 invests in U.S. Government obligations. "U.S. Government
obligations" include securities which are issued or guaranteed by the United
States Treasury, by various agencies of the United States Government, and by
various instrumentalities which have been established or sponsored by the United
States Government. U.S. Treasury obligations are backed by the "full faith and
credit" of the United States Government. U.S. Treasury obligations include
Treasury bills, Treasury notes, and Treasury bonds. U.S. Treasury obligations
also include the separate principal and interest components of U.S. Treasury
obligations which are traded under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Agencies or instrumentalities
established by the United States Government include the Federal Home Loan Banks,
the Federal Land Bank, the Government National Mortgage Association, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
Student Loan Marketing Association, the Small Business Administration, the Bank
for Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing
Bank, the Federal Farm Credit Banks, the Federal Agricultural Mortgage
Corporation, the Resolution Funding Corporation, the Financing Corporation of
America and the Tennessee Valley Authority. Some of these securities are
supported by the full faith and credit of the United States Government while
others are supported only by the credit of the agency or instrumentality, which
may include the
- 5 -
<PAGE>
right of the issuer to borrow from the United States Treasury. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States in the event the agency or instrumentality does not meet its
commitments. Shares of the Fund are not guaranteed or backed by the United
States Government.
The Fund may invest in securities issued or guaranteed by any of the
entities listed above or by any other agency or instrumentality established or
sponsored by the United States Government, provided that the securities are
otherwise permissible investments of the Fund. Certain U.S. Government
obligations which have a variable rate of interest readjusted no less frequently
than annually will be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate.
The market value of investments available to the Fund and therefore the
Fund's yield, will fluctuate due to changes in interest rates, economic
conditions, quality ratings and other factors beyond the control of the Adviser.
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 prepayment experience of
the mortgages underlying mortgage-related U.S. Government obligations, such as
obligations issued by the Government National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation, may
affect the value of, and the return on an investment in, such securities.
Other Investment Techniques
The Fund may also engage in the following investment techniques, each
of which may involve certain risks:
DELAYED SETTLEMENT TRANSACTIONS. Obligations issued on a when-issued or
to-be-announced basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. In a to-be-announced transaction, the
Fund has committed to purchasing or selling securities for which all specific
information is not yet known at the time of the trade, particularly the face
amount in transactions involving mortgage-related securities. The Fund will only
make commitments to purchase obligations on a when-issued or to-be-announced
basis with the intention of actually acquiring the obligations, but the
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Fund may sell these securities before the settlement date if it is deemed
advisable as a matter of investment strategy or in order to meet its
obligations, although it would not normally expect to do so. The Fund does not
currently intend to invest more than 5% of its net assets in securities
purchased on this basis, and the Fund will not enter into a delayed settlement
transaction which settles in more than 120 days.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, banks having assets in excess of $10 billion and the largest and,
in the Board of Trustees' judgment, most creditworthy primary U.S. Government
securities dealers. The Fund will enter into repurchase agreements which are
collateralized by U.S. Government obligations. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Fund's
Custodian at the Federal Reserve Bank. At the time the Fund enters into a
repurchase agreement, the value of the collateral, including accrued interest,
will equal or exceed the value of the repurchase agreement and, in the case of a
repurchase agreement exceeding one day, the seller agrees to maintain sufficient
collateral so that the value of the underlying collateral, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 10% of the value of the net
assets of the Fund would be invested in such securities and other illiquid
securities.
BORROWING AND PLEDGING. The Fund may borrow money from banks (provided
there is 300% asset coverage) or from banks or other persons for temporary
purposes (in an amount not exceeding 5% of its total assets). The Fund will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets. The Fund may pledge assets in
connection with borrowings but will not pledge more than one-third of its total
assets. The Fund will not make any additional purchases of portfolio securities
if outstanding borrowings exceed 5% of the value of its total assets. Borrowing
magnifies the potential for gain or loss on the Fund's portfolio securities and,
therefore, if employed, increases the possibility of fluctuation in its net
asset value. This is the speculative factor known as leverage. The Fund's
policies on borrowing and
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pledging are fundamental policies which may not be changed without the
affirmative vote of a majority of its outstanding shares.
LENDING PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes the Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that the Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or liquid high-grade debt obligations, with the Fund's Custodian in
an amount at least equal to the market value of the loaned securities. The Fund
will limit the amount of its loans of portfolio securities to no more than 25%
of its net assets. This lending policy may not be changed by the Fund without
the affirmative vote of a majority of its outstanding shares.
HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least
$100,000. 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 completed account
application form to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable to the "Institutional Government
Income Fund." An account application is included in this Prospectus.
You will be sent within five business days after the end of each month
a written statement disclosing each purchase or redemption effected and each
dividend or distribution credited to your account during the month. Certificates
representing shares are not issued. The Trust and the Adviser reserve the rights
to limit the amount of investments and to refuse to sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Trust, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone redemptions and exchanges) made
available to investors.
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<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.
You may receive a dividend on the day of your wire investment provided
you have given notice of your intention to make such investment to MGF Service
Corp. by 12:30 p.m., Eastern time, on that day. Your investment will be made at
the net asset value next determined after your wire is received together with
the account information indicated above. If the Trust does not receive timely
and complete account information, there may be a delay in the investment of your
money and any accrual of dividends. To make your initial wire purchase, you are
required to mail a completed account application to MGF Service Corp. Your bank
may impose a charge for sending your wire. There is presently no fee for receipt
of wired funds, but MGF Service Corp. reserves the right to charge shareholders
for this service upon thirty days' prior notice to shareholders.
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 to the
"Institutional Government Income Fund." Bank wires should be sent as outlined
above. You may also make additional investments at the Trust's offices at 312
Walnut Street, 21st Floor, Cincinnati, Ohio 45202. Each additional purchase
request must contain the name of your account and your account number to permit
proper crediting to your account. While there is no minimum amount required for
subsequent investments, the Trust reserves the right to impose such requirement.
CASH SWEEP PROGRAM. Cash accumulations in accounts with financial
institutions may be automatically invested in shares of the Fund at the next
determined net asset value on a day selected by the institution or its customer,
or when the account balance reaches a predetermined dollar amount (e.g.,
$5,000).
Participating institutions are responsible for prompt transmission of
orders relating to the program. Institutions participating in this program may
charge their customers fees for services relating to the program which would
reduce the customers' yield from an investment in the Fund. This Prospectus
should, therefore, be read together with any agreement between
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<PAGE>
the customer and the participating institution with regard to the services
provided, the fees charged for these services and any restrictions and
limitations imposed.
HOW TO REDEEM SHARES
You may redeem 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 a proper 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.
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.
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 normally be sent by mail or by wire within one business
day (but not later than three business days) after receipt of your telephone
instructions. Any redemption requests by telephone must be received in proper
form prior to 12:30 p.m., Eastern time, on any business day in order for payment
by wire to be made that day.
The telephone redemption privilege is automatically available to all
shareholders. You may change the bank or brokerage account which you have
designated under this procedure at any time by writing to MGF Service Corp. with
your signature guaranteed by any eligible guarantor institution (including
banks, brokers and dealers, municipal securities brokers and dealers, government
securities brokers and dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations)
or by completing a supplemental telephone redemption authorization form. Contact
MGF Service Corp. to obtain this form. Further documentation will be required to
change the designated account if shares are held by a corporation, fiduciary or
other organization.
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<PAGE>
Neither the Trust, MGF Service Corp., nor their respective affiliates
will be liable for complying with telephone instructions they reasonably believe
to be genuine or for any loss, damage, cost or expense in acting on such
telephone instructions. The affected shareholders will bear the risk of any such
loss. The Trust or MGF Service Corp., or both, will employ reasonable procedures
to determine that telephone instructions are genuine. If the Trust and/or MGF
Service Corp. do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
BY MAIL. You may redeem any number of shares from your account by
sending a written request to MGF Service Corp. The request must state the number
of shares to be redeemed and your account number. The request must be signed
exactly as your name appears on the Trust's account records. If the shares to be
redeemed have a value of $25,000 or more, your signature must be guaranteed by
any of the eligible guarantor institutions outlined above.
Written redemption requests may also direct that the proceeds be
deposited directly in the bank account or brokerage account designated on your
account application for telephone redemptions. Proceeds of redemptions requested
by mail are mailed within three business days following receipt of instructions
in proper form.
ADDITIONAL REDEMPTION INFORMATION. There is currently no charge for
processing wire redemptions. However, the Trust reserves the right, upon thirty
days' written notice, to make reasonable charges for wire redemptions. All
charges will be deducted from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. In the event that wire transfer of funds is impossible or impractical, the
redemption proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact MGF Service Corp. for more information about ACH
transactions.
At the discretion of the Trust or MGF Service Corp., corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to
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<PAGE>
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 $100,000
(based on actual amounts invested, unaffected by market fluctuations) or such
other minimum amount as the Trust may determine from time to time. After
notification to you of the Trust's intention to close your account, you will be
given thirty days to increase the value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
Shares of the Fund and of any other fund of the Midwest Group of Funds
may be exchanged for each other. A sales load will be imposed equal to the
excess, if any, of the sales load rate applicable to the shares being acquired
over the sales load rate, if any, previously paid on the shares being exchanged.
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
*Tax-Free Intermediate Term Fund Midwest Trust
*Ohio Insured Tax-Free Fund Short Term Government Income Fund
Institutional Government Income Fund
*Intermediate Term Government Income
Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to MGF Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by visiting the
Trust's offices at 312 Walnut Street, 21st Floor,
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<PAGE>
Cincinnati, Ohio 45202. An exchange will be effected at the next determined net
asset value (or offering price, if sales load is applicable) after receipt of a
request by MGF Service Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact MGF Service Corp. to obtain a
current prospectus for any of the other funds in the Midwest Group and more
information about exchanges among the Midwest Group of Funds.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However,
certain institutions may wish to use the transfer agent's subaccounting system
to minimize their internal recordkeeping requirements. MGF Service Corp. may
charge a subaccounting fee based on the level of services rendered. Institutions
holding Fund shares in a fiduciary, agency, custodial or similar capacity may
charge or pass through subaccounting fees as part of or in addition to normal
trust or agency account fees. This Prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fee charged for those services and any
restrictions and limitations imposed.
DIVIDENDS AND DISTRIBUTIONS
All of the net investment income of the Fund is declared as a dividend
to shareholders of record on each business day of the Trust and paid monthly.
Management will determine the timing and frequency of the distributions of any
net realized short-term capital gains. Although the Fund does not expect to
realize any long-term capital gains, if the Fund does realize such gains it will
distribute them at least once each year.
Dividends are automatically reinvested in additional shares of the Fund
(the Share Option) unless cash payments are specified on your application or are
otherwise requested by contacting MGF Service Corp. If you elect to receive
dividends in cash and the U.S. Postal Service cannot deliver your checks or if
your checks remain uncashed for six months, your dividends may be reinvested in
your account at the then-current net asset value and your account will be
converted to the Share Option.
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<PAGE>
TAXES
The Fund has qualified in all prior years and intends to continue 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 intends
to distribute substantially all of its net investment income and any net
realized capital gains to its shareholders. Distributions of net investment
income as well as from net realized short-term capital gains, if any, are
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.
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. In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions. The tax consequences described in this
section apply whether distributions are taken in cash or reinvested in
additional shares.
OPERATION OF THE FUND
The Fund is a diversified series of Midwest Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 7, 1980. 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 45202 (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 four other series of the Trust, six series of Midwest
Group Tax Free Trust and four series of Midwest Strategic Trust. The Fund pays
the Adviser a fee equal to the annual rate of .2% of the average value of its
daily net assets.
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
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<PAGE>
expenses of members of the Board of Trustees who are not interested persons of
the Trust, the cost of preparing and distributing prospectuses, statements,
reports and other documents to shareholders, expenses of shareholders' meetings
and proxy solicitations, and such extraordinary or non-recurring expenses as may
arise, including litigation to which the Fund may be a party and indemnification
of the Trust's officers and Trustees with respect thereto.
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati,
Ohio, 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 the annual rate of .1% of the average value of the Fund's daily net
assets.
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.
The Adviser and MGF Service Corp. are each a wholly-owned
subsidiary of Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Pursuant to an agreement dated December 10, 1996
between the shareholders of Leshner Financial, Inc. and Countrywide Credit
Industries, Inc. ("CCI"), CCI has agreed to acquire all of the outstanding
common stock of Leshner Financial, Inc. in exchange for newly issued common
stock of CCI. Following such acquisition, which is expected to be consummated on
or about February 28, 1997, Leshner Financial, Inc. will be a wholly-owned
subsidiary of CCI. CCI is a New York Stock Exchange listed company principally
engaged in residential mortgage lending.
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<PAGE>
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.
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<PAGE>
The annual limitation for payment of expenses pursuant to the Plan is
.1% of the Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by the
Fund in accordance with its terms, the Fund will not be required to make any
payments for expenses incurred by the Adviser after the date the Plan
terminates.
Pursuant to the Plan, the Fund may also make payments to banks or other
financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass- Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Fund, no preference will be shown for
such securities.
CALCULATION OF SHARE PRICE
On each day that the Trust is open for business, the share price (net
asset value) of the Fund's shares is determined as of 12:30 p.m. and 4:00 p.m.,
Eastern time. The Trust is open for business on each day the New York Stock
Exchange is open for business and on any other day when there is sufficient
trading in the Fund's investments that its net asset value might be materially
affected. The net asset value per share of the Fund is calculated by dividing
the sum of the value of the securities held by the Fund plus cash or other
assets minus all liabilities (including estimated accrued expenses) by the total
number of shares outstanding of the Fund, rounded to the nearest cent.
The Fund's portfolio securities are valued on an amortized cost basis.
In connection with the use of the amortized cost method of valuation, the Fund
maintains a dollar-weighted average portfolio maturity of 90 days or less,
purchases only United States dollar-denominated securities having remaining
maturities
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<PAGE>
of thirteen months or less and invests only in securities determined by the
Board of Trustees to meet the Fund's quality standards and to present minimal
credit risks. Other assets of the Fund are valued at their fair value as
determined in good faith in accordance with consistently applied procedures
established by and under the general supervision of the Board of Trustees. It is
anticipated, but there is no assurance, that the use of the amortized cost
method of valuation will enable the Fund to maintain a stable net asset value
per share of $1.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its "current yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "current yield" of the Fund
refers to the income generated by an investment in the Fund over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "current yield" because of the compounding effect of this assumed
reinvestment.
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ACCOUNT APPLICATION
Please mail account application to:
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
INSTITUTIONAL GOVERNMENT
INCOME FUND
ACCOUNT NO. 23-______________________
(For Fund Use Only)
FOR BROKER/DEALER USE ONLY
Firm Name:________________________
Home Office Address:______________
Branch Address:___________________
Rep Name & No.:___________________
Initial Investment of $___________ ($100,000 Minimum)
o Check or draft enclosed payable to the Fund.
o Bank Wire From:_______________________________________________________
o Exchange From:________________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX L.D.#
Name of Individual, Corporation, (In case of custodial account
Organization, or Minor, etc. please list minor's S.S.#)
________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other
ADDRESS PHONE
________________________________________ ( )_____________
Street or P.O. Box Business Phone
________________________________________ ( )_____________
City State Zip Home Phone
Check Appropriate Box: o Individual o Joint Tenant (Right of survivorship
presumed) o Partnership o Corporation o Trust o Custodial o Non-Profit o Other
- - ------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that
the Taxpayer Identification Number listed above is my correct number. The
Internal Revenue Service does not require your consent to any provision of this
document other than the certifications required to avoid backup withholding.
Check box if appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do not
provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
<PAGE>
- - ------------------------------------------------------------------------------
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Cash Option -- Income distributions and capital gains distributions paid in
cash.
- - ------------------------------------------------------------------------------
REDEMPTION OPTIONS
I (we) authorize the Trust or MGF Service Corp. to act upon instructions
received by telephone, to have amounts withdrawn from my (our) account in any
fund in the Midwest Group (see prospectus for limitations on this option) and:
WIRED ($1,000 minimum OR MAILED to my (our) bank account designated below. I
(we) further authorize the used of automated cash transfers to and from the
account designated below.
NOTE: For wire redemptions, the indicated bank should be a commercial bank.
PLEASE ATTACH A VOIDED CHECK FOR THE ACCOUNT.
Bank Account Number______________Bank Routing Transit Number_______________
Name of Account Holder_____________________________________________________
Bank Name________________Bank Address______________________________________
City State
<PAGE>
- - ------------------------------------------------------------------------------
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints MGF Service Corp. as his agent to enter orders for shares whether by
direct purchase or exchange, to receive dividends and distributions for
automatic reinvestment in additional shares of the Fund for credit to the
investor's account and to surrender for redemption shares held in the
investor's account in accordance with any of the procedures elected above or
for payment of service charges incurred by the investor. The investor further
agrees that MGF Service Corp. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this
Application. The investor hereby ratifies any instructions given pursuant to
this Application and for himself and his successors and assigns does hereby
release MGF Service Corp., Midwest Trust, Midwest Group Financial Services,
Inc., and their respective officers, employees, agents and affiliates from any
and all liability in the performance of the acts instructed herein. Neither
the Trust, MGF Service Corp., nor their respective affiliates will be liable
for complying with telephone instructions they reasonably believe to be
genuine or for any loss, damage, cost or expense in acting on such telephone
instructions. The investor(s) will bear the risk of any such loss. The Trust
or MGF Service Corp., or both, will employ reasonable procedures to determine
that telephone instructions are genuine. If the Trust and/or MGF Service
Corp. do not employ such procedures, they may be liable for losses due to
unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
_____________________________________ _____________________________________
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
_____________________________________ _____________________________________
Title of Corporate Officer, Date
Trustee, etc.
NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE THE
RESOLUTION FORM ON THE REVERSE SIDE.
UNLESS OTHERWISE SPECIFIED, EACH JOINT OWNER SHALL HAVE FULL AUTHORITY TO ACT
ON BEHALF OF THE ACCOUNT.
<PAGE>
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other
Organizations)
RESOLVED: That this corporation or organization become a shareholder of
Midwest Trust (the Trust) and that ________________________ is (are) hereby
authorized to complete and execute the Application on behalf of the
corporation or organization and to take any action for it as may be necessary
or appropriate with respect to its shareholder account with the Trust, 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
applicable series of the Trust, to establish or acknowledge terms and
conditions governing the redemption of said shares and to otherwise implement
the privileges elected on the Application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
____________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of ___________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on _____________ at which a
quorum was present and acting throughout, and that the same are now in full
force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the
foregoing resolutions.
NAME TITLE
_____________________________________ _____________________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
Witness my hand and seal of the corporation or organization
this________________day of________, 19_______
_____________________________________ _____________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
MIDWEST TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
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
- 19 -
<PAGE>
TABLE OF CONTENTS
Expense Information. . . . . . . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies. . . . . . . . . . . . . .
How to Purchase Shares . . . . . . . . . . . . . . . . . . .
How to Redeem Shares . . . . . . . . . . . . . . . . . . . .
Exchange Privilege . . . . . . . . . . . . . . . . . . . . .
Subaccounting Services . . . . . . . . . . . . . . . . . . .
Dividends and Distributions. . . . . . . . . . . . . . . . .
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation of the Fund. . . . . . . . . . . . . . . . . . . .
Distribution Plan. . . . . . . . . . . . . . . . . . . . . .
Calculation of Share Price . . . . . . . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . . . .
- -----------------------------------------------------------------
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 20 -
<PAGE>
PROSPECTUS
February 1, 1997
Midwest Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND
The Adjustable Rate U.S. Government Securities Fund (the "Fund"), a
separate series of Midwest Trust, seeks high current income, consistent with
lower volatility of principal, by investing primarily in mortgage-related
securities created from pools of adjustable rate mortgages which are issued or
guaranteed by the United States Government, its agencies or instrumentalities.
The Fund offers two classes of shares: Class A shares (sold subject to
a maximum 2% front-end sales load and a 12b-1 fee of up to .35% of average daily
net assets) and Class C shares (sold subject to a 1% contingent deferred sales
load for a one-year period and a 12b-1 fee of up to 1% of average daily net
assets). Each Class A and Class C share of the Fund represents identical
interests in the Fund's investment portfolio and has the same rights, except
that (i) Class C shares bear the expenses of higher distribution fees, which
will cause Class C shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares; (ii) certain other class
specific expenses will be borne solely by the class to which such expenses are
attributable; and (iii) each class has exclusive voting rights with respect to
matters relating to its own distribution arrangements.
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 after consultation with Hanover Capital Advisors Inc.
(see "Operation of the Fund").
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, 1997 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling one of the numbers listed below.
- -------------------------------------------------------------------------------
For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . 800-543-0407
Cincinnati . . . . . . . . . . . . . . . . . . . 513-629-2050
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
Class A Class C
Shareholder Transaction Expenses Shares Shares
- -------------------------------- ------- ------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . 2% None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price). . . . None* 1%
Sales Load Imposed on Reinvested Dividends. . . . . None None
Exchange Fee. . . . . . . . . . . . . . . . . . . . None None
Redemption Fee. . . . . . . . . . . . . . . . . . . None** None**
Check Redemption Processing Fee (per check):
First Six Checks per Month . . . . . . . . . . . None None
Additional Checks per Month. . . . . . . . . . . $0.25 $0.25
* Purchases at net asset value of amounts totaling $1 million or more may
be subject to a contingent deferred sales load of .75% if a redemption
occurred within 12 months of purchase and a commission was paid by the
Adviser to a participating unaffiliated dealer.
** 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)
Class A Class C
Shares Shares
Management Fees After Waivers(A) .00% .00%
12b-1 Fees(B) .11% .01%
Other Expenses After Reimbursements(C) .64% 1.39%
---- -----
Total Fund Operating Expenses After Waivers .75% 1.40%
and Expense Reinbursements(D) ==== =====
(A) Absent waivers of management fees, such fees would have been .50% for
the fiscal year ended September 30, 1996.
(B) Class A shares may incur 12b-1 fees in an amount up to .35% of average
net assets and Class C shares may incur 12b-1 fees in an amount up to
1.00% of average net assets. 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 expense reimbursements by the Adviser, other expenses would have
been .85% and 7.07% for Class A and Class C shares, respectively, for
the fiscal year ended September 30, 1996.
(D) Absent waivers of management fees and expense reimbursements by the
Adviser, total Fund operating expenses would have been 1.46% and 7.58%
for Class A and Class C shares, respectively, for the fiscal year ended
September 30, 1996.
- 2 -
<PAGE>
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 amounts incurred during the most recent fiscal year except that other
expenses for Class C shares of the Fund have been restated to reflect an
anticipated decrease in the amount of expense reimbursements to be made by the
Adviser during 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
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: Class A Shares Class C Shares
-------------- --------------
1 Year $ 28 $ 24
3 Years 43 44
5 Years 61 77
10 Years 111 168
- 3 -
<PAGE>
FINANCIAL HIGHLIGHTS
The following information, which has been audited by Arthur Andersen
LLP, is an integral part of the audited financial statements and should be read
in conjunction with the financial statements. The financial statements as of
September 30, 1996 and related auditors' report appear in the Statement of
Additional Information of the Fund, which can be obtained by shareholders at no
charge by calling MGF Service Corp. (Nationwide call toll-free 800-543-0407, in
Cincinnati call 629-2050) or by writing to the Trust at the address on the front
of this Prospectus.
Per Share Data for a Share Outstanding Throughout Each Period - Class A
<TABLE>
<C> <C> <C> <C> <C>
=================================================================================================================
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1994 1993(A)
- ------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ........ $ 9.78 $ 9.82 $ 10.01 $ 10.00
------------ -------------- ------------- --------------
Income from investment operations:
Net investment income ...................... 0.57 0.55 0.39 0.28
Net realized and unrealized gains (losses)
on investments 0.03 (0.04) (0.18) 0.01
------------ -------------- ------------- --------------
Total from investment operations .............. 0.60 0.51 0.21 0.29
------------ -------------- ------------- --------------
Less distributions:
Dividends from net investment income........ (0.57) (0.55) (0.39) (0.28)
Distributions from net realized gains....... -- -- (0.01) -
------------ -------------- ------------- --------------
Total distributions ........................... (0.57) (0.55) (0.40) (0.28)
------------ -------------- ------------- --------------
Net asset value at end of period .............. $ 9.81 $ 9.78 $ 9.82 $ 10.01
============ ============== ============= ==============
Total return(B) ............................... 6.32% 5.33% 2.09% 4.56%(D)
============ ============== ============= ==============
Net assets at end of period (000's) ........... $ 11,732 $ 20,752 $ 37,572 $ 24,400
============ ============== ============= ==============
Ratio of expenses to average net assets(C) .... 0.75% 0.75% 0.68% 0.22%(D)
Ratio of net investment income to average net assets 5.91% 5.57% 3.91% 4.17%(D)
Portfolio turnover rate ....................... 44% 115% 81% 170%(D)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the initial public offering of Class A shares (February 10, 1993) through September 30, 1993.
(B) The total returns shown do not include the effect of applicable sales loads.
(C) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios of expenses to average net assets would have
been 1.46%, 1.21%, 0.78% and 1.18%(D) for the periods ended September 30, 1996, 1995, 1994 and 1993, respectively.
(D) Annualized.
</FN>
</TABLE>
<PAGE>
<TABLE>
Per Share Data for a Share Outstanding Throughout Each Period-Class C
===================================================================================================================
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
1996 1995(A)
- -------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .................................. $ 9.78 $ 9.76
-------------- ---------------
Income from investment operations:
Net investment income ................................................ 0.52 0.22
Net realized and unrealized gains on investments ..................... 0.03 0.02
-------------- ---------------
Total from investment operations ........................................ 0.55 0.24
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. (0.52) (0.22)
-------------- ---------------
Total distributions ..................................................... (0.52) (0.22)
-------------- ---------------
Net asset value at end of period ........................................ $ 9.81 $ 9.78
============== ===============
Total return(B) ......................................................... 5.77% 5.87%(D)
============== ===============
Net assets at end of period (000's) ..................................... $ 629 $ 86
============== ===============
Ratio of expenses to average net assets(C) .............................. 1.24% 1.24%(D)
Ratio of net investment income to average net assets .................... 5.17% 5.38%(D)
Portfolio turnover rate ................................................. 44% 115%(D)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Represents the period from the initial public offering of Class C shares
(May 1, 1995) through September 30, 1995.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 7.58% and 18.84%(D) for the
periods ended September 30, 1996 and 1995, respectively.
(D) Annualized.
- 5 -
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a series of Midwest Trust (the "Trust"). The Fund seeks
high current income, consistent with lower volatility of principal. The Fund
seeks to achieve its investment objective by investing primarily in
mortgage-related securities created from pools of adjustable rate mortgages
which are guaranteed as to principal and interest by the United States
Government, its agencies or instrumentalities.
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.
Under normal circumstances, at least 65% of the Fund's total assets
will be invested in adjustable rate mortgage securities which have interest
rates that are reset at periodic intervals and which are issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. It is anticipated that
by investing primarily in mortgage-related securities which have variable rates
of interest, the Fund will achieve a less volatile net asset value than is
characteristic of mutual funds that invest primarily in mortgage-related
securities paying a fixed rate of interest. Mortgage-related securities eligible
for purchase by the Fund are described below.
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. Mortgage-related securities and other debt securities 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
prepayment experience of the mortgages underlying mortgage-related U.S.
Government obligations may affect the value of, and the return on an investment
in, such securities.
- 6 -
<PAGE>
In addition to mortgage-related securities, the Fund may invest in all
types of U.S. Government obligations (described below). For defensive or
liquidity purposes, the Fund may temporarily hold up to 10% of its assets in
short-term obligations such as bank debt instruments (certificates of deposit,
bankers' acceptances and time deposits) or repurchase agreements collateralized
by U.S. Government obligations.
It is the current policy of the Fund to limit its investments and
transactions to those investments and transactions permissible for Federal
credit unions pursuant to 12 U.S.C. Section 1757(7) and (8) and 12 CFR Part 703.
If this policy is changed as to permit the Fund to make portfolio investments
and engage in transactions not permissible for Federal credit unions, the Trust
will so notify all Federal credit union shareholders.
MORTGAGE-RELATED U.S. GOVERNMENT OBLIGATIONS. Mortgage-related U.S.
Government obligations include GNMA Certificates, FHLMC Certificates and FNMA
Certificates.
GNMA Certificates are U.S. Government obligations guaranteed by the
Government National Mortgage Association (the GNMA) and are mortgage-backed
securities representing part ownership of a pool of mortgage loans. The pool of
mortgage loans underlying the GNMA Certificates is assembled by the issuer,
usually a private mortgage lender. The loans in the pool, issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations, are
either insured by the Federal Housing Administration or the Farmers' Home
Administration or guaranteed by the Veterans Administration. If the pool is
approved by the GNMA, GNMA Certificates are issued and sold to investors such as
the Fund. The Fund will invest only in GNMA Certificates of the pass-through
type. This type of GNMA Certificate entitles the holder to receive all interest
and principal payments owed 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. However, shares of the
Fund are not guaranteed or backed by either the GNMA or the United States
Government.
FHLMC Certificates are U.S. Government obligations guaranteed by the
Federal Home Loan Mortgage Corporation (the FHLMC). As with GNMA Certificates,
FHLMC Certificates are pass-through mortgage-backed securities representing part
ownership of a pool of mortgage loans. The FHLMC generally purchases such
mortgage loans from those lenders insured by the Federal Deposit
- 7 -
<PAGE>
Insurance Corporation, or Federal Housing Administration mortgagees approved by
the Department of Housing and Urban Development. The securities and guarantees
of the FHLMC are not backed, directly or indirectly, by the full faith and
credit of the United States.
FNMA Certificates are U.S. Government obligations guaranteed by the
Federal National Mortgage Association (the FNMA). The FNMA is a U.S. Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. The FNMA
purchases residential mortgages from a list of approved sellers, which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks, credit unions and mortgage banks. Pass-through
securities issued by the FNMA are not backed by the full faith and credit of the
United States, although the Secretary of the Treasury of the United States has
discretionary authority to lend the FNMA up to $2.25 billion outstanding at any
time.
Prepayments of and payments on foreclosures of mortgage loans
underlying a mortgage-related security 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 a
mortgage-related security may be prepaid at any time without penalty. If a
prepayment of a mortgage loan underlying a particular mortgage-related security
occurs, the return to the Fund may be lower if the Fund acquired the security at
a premium over par or higher if the Fund acquired the security at a discount
from par. In addition, prepayments of mortgage loans underlying a particular
mortgage-related security held by the Fund will reduce the market value of the
security to the extent the market value of the security at the time of
prepayment exceeds its 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 net asset
value of the Fund to increase to the extent that prepayments do not occur, while
a rise in interest rates will cause the net asset value of the Fund to decrease.
Most of the pass-through mortgage securities in which the Fund invests
will be adjustable rate mortgage securities ("ARMS"). ARMS are collateralized by
adjustable rather than fixed-rate mortgages. The ARMS in which the Fund invests
are actively traded. Generally, adjustable rate mortgages have a specified
maturity date and amortize principal over their life. In periods of declining
interest rates there is a reasonable likelihood that ARMS will experience
increased rates of prepayment of principal. However, the major difference
between ARMS and fixed-rate mortgage securities is that the interest rate
- 8 -
<PAGE>
can and does change in accordance with movements in a particular, pre-specified,
published interest rate index. There are two main categories of indices: those
based on U.S. Treasury obligations and those derived from a calculated measure,
such as a cost of funds index or a moving average of mortgage rates. The amount
of interest on an adjustable rate mortgage is calculated by adding a specified
amount to the applicable index, subject to limitations on the maximum and
minimum interest that is charged during the life of the mortgage or to maximum
and minimum changes to that interest rate during a given period. Because the
interest rate on ARMS generally moves in the same direction as market interest
rates, the market value of ARMS tends to be more stable than that of fixed-rate
mortgage securities and ARMS tend to experience lower rates of prepayment of
principal than fixed-rate mortgage securities. However, ARMS are also less
likely than fixed-rate mortgage securities of comparable quality and maturity to
increase significantly in value during periods of declining interest rates.
The adjustable interest rate feature of the mortgages underlying ARMS
will generally act as a buffer to reduce sharp changes in the Fund's net asset
value in response to normal interest rate fluctuations. As the interest rates on
the mortgages underling ARMS are reset periodically, yields of portfolio
securities will gradually align themselves to reflect changes in market rates
and should cause the net asset value of the Fund to fluctuate less dramatically
than it would if the Fund invested in more traditional long-term, fixed-rate
debt securities. However, during the periods of rising interest rates, changes
in the coupon rate lag behind changes in the market rate resulting in possibly a
slightly lower net asset value until the coupon resets to market rates. Thus,
investors could suffer some principal loss if they sold their shares of the Fund
before the interest rates on the underlying mortgages are adjusted to reflect
current market rates.
The underlying mortgages which collateralize the ARMS in which the Fund
invests will frequently have caps and floors which limit the maximum amount by
which the loan rate to the residential borrower may change up or down (1) per
reset or adjustment interval and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative amortization. The value
of mortgage-related securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization
- 9 -
<PAGE>
and prepayments may occur, thereby causing the effective maturities of the
mortgage-related securities in which the Fund invests to be shorter than the
maturities stated in the underlying mortgages.
U.S. GOVERNMENT OBLIGATIONS. "U.S. Government obligations" include
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes, and Treasury bonds. U.S. Treasury obligations also
include the separate principal and interest components of U.S. Treasury
obligations which are traded under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Agencies or instrumentalities
established by the United States Government include the Federal Home Loan Banks,
the Federal Land Bank, the GNMA, the FNMA, the FHLMC, the Student Loan Marketing
Association, the Small Business Administration, the Bank for Cooperatives, the
Federal Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm
Credit Banks, the Federal Agricultural Mortgage Corporation, the Resolution
Funding Corporation, the Financing Corporation of America and the Tennessee
Valley Authority. Some of these securities are supported by the full faith and
credit of the United States Government while others are supported only by the
credit of the agency or instrumentality, which may include the right of the
issuer to borrow from the United States Treasury. In the case of securities not
backed by the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States in
the event the agency or instrumentality does not meet its commitments. Shares of
the Fund are not guaranteed or backed by the United States Government.
The Fund may invest in securities issued or guaranteed by any of the
entities listed above or by any other agency or instrumentality established or
sponsored by the United States Government, provided that the securities are
otherwise permissible investments of the Fund. Certain U.S. Government
obligations which have a variable rate of interest readjusted no less frequently
than annually will be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate.
Other Investment Techniques
The Fund may also engage in the following investment techniques, each
of which may involve certain risks:
- 10 -
<PAGE>
DELAYED SETTLEMENT TRANSACTIONS. Obligations issued on a when-issued or
to-be-announced basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. In a to-be-announced transaction, the
Fund has committed to purchasing or selling securities for which all specific
information is not yet known at the time of the trade, particularly the face
amount in transactions involving mortgage-related securities. The Fund will only
make commitments to purchase obligations on a when-issued or to-be-announced
basis with the intention of actually acquiring the obligations, but the Fund may
sell these securities before the settlement date if it is deemed advisable as a
matter of investment strategy or in order to meet its obligations, although it
would not normally expect to do so. The Fund will not enter into a delayed
settlement transaction which settles in more than 120 days.
Purchases of securities on a when-issued or to-be-announced basis are
subject to market fluctuations and their current value is determined in the same
manner as other portfolio securities. When effecting such purchases for the
Fund, a segregated account of cash or U.S. Government obligations of the Fund in
an amount sufficient to make payment for the portfolio securities to be
purchased will be maintained with the Fund's Custodian at the trade date and
valued daily at market for the purpose of determining the adequacy of the
securities in the account. If the market value of segregated securities
declines, additional cash or U.S. Government obligations will be segregated on a
daily basis so that the market value of the Fund's segregated assets will equal
the amount of the Fund's commitments to purchase when- issued obligations and
securities on a to-be-announced basis. The Fund's purchase of securities on a
when-issued or to-be- announced basis may increase its overall investment
exposure and involves a risk of loss if the value of the securities declines
prior to the settlement date or if the broker-dealer selling the securities
fails to deliver after the value of the securities has risen.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, banks having assets in excess of $10 billion and the largest and,
in the Board of Trustees' judgment, most creditworthy primary U.S. Government
securities dealers. The Fund will enter into repurchase agreements which are
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collateralized by U.S. Government obligations. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Fund's
Custodian at the Federal Reserve Bank. At the time the Fund enters into a
repurchase agreement, the value of the collateral, including accrued interest,
will equal or exceed the value of the repurchase agreement and, in the case of a
repurchase agreement exceeding one day, the seller agrees to maintain sufficient
collateral so that the value of the underlying collateral, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of the net
assets of the Fund would be invested in such securities and other illiquid
securities.
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 15% of its total
assets. The Fund will not make any additional purchases of portfolio securities
if outstanding borrowings exceed 5% of the value of its total assets. Borrowing
magnifies the potential for gain or loss on the Fund's portfolio securities and,
therefore, if employed, increases the possibility of fluctuation in its net
asset value. This is the speculative factor known as leverage. To reduce the
risks of borrowing, the Fund will limit its borrowings as described above. The
Fund's policies on borrowing and pledging are fundamental policies which may not
be changed without the affirmative vote of a majority of its outstanding shares.
LENDING PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes the Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that the Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or liquid high-grade debt obligations, with the Fund's Custodian in
an amount at least equal to the market value of the loaned securities. The Fund
will limit the amount of its loans of portfolio securities to no more than 25%
of its net assets. This lending policy may not be changed by the Fund without
the affirmative vote of a majority of its outstanding shares.
PORTFOLIO TURNOVER. The Fund does not intend to use short-term trading
as a primary means of achieving its investment objective. However, the Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
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appropriate by the Adviser. High turnover involves correspondingly greater
commission expenses and transaction costs and increases the possibility that the
Fund would not qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code. The Fund will not qualify as a regulated investment
company if it derives 30% or more of its gross income from gains (without offset
for losses) from the sale or other disposition of securities held for less than
three months. High turnover may result in the Fund recognizing greater amounts
of income and capital gains, which would increase the amount of income and
capital gains which the Fund must distribute to its shareholders in order to
maintain its status as a regulated investment company and to avoid the
imposition of federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least $1,000
($250 for tax-deferred retirement plans). You may purchase additional shares
through the Open Account Program described below. You may open an account and
make an initial investment through securities dealers having a sales agreement
with the Trust's principal underwriter, Midwest Group Financial Services, Inc.
(the "Adviser"). You may also make a direct initial investment by sending a
check and a completed account application form to MGF Service Corp., P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the
"Adjustable Rate U.S. Government Securities Fund." An account application is
included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not ordinarily issued, but you
may receive a certificate without charge by sending a written request to MGF
Service Corp. Certificates for fractional shares will not be issued. If a
certificate has been issued to you, you will not be permitted to redeem shares
by check, to redeem or exchange shares by telephone or to use the automatic
withdrawal plan as to those shares. 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.
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<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.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning
the services described in this section to MGF Service Corp. at
the address or numbers listed below.
After an initial investment, all investors are considered participants
in the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Fund over a period of years and permits the automatic
reinvestment of dividends and distributions of the Fund in additional shares
without a sales load.
Under the Open Account Program, you may purchase and add
shares to your account at any time either through your securities dealer or by
sending a check to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio
45201-5354. The check should be made payable to the "Adjustable Rate U.S.
Government Securities Fund."
Under the Open Account Program, you may also purchase shares of the
Fund by bank wire. Please telephone MGF Service Corp. (Nationwide call toll-free
800-543-0407; in Cincinnati call 629- 2050) for instructions. 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.
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. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for selling
shares of the Fund to a current shareholder, such broker-dealer will receive the
concessions described above with respect to additional investments by the
shareholder.
Sales Load Alternatives
The Fund offers two classes of shares which may be purchased at the
election of the purchaser. The two classes of shares each represent interests in
the same portfolio of investments of the Fund, have the same rights and are
identical in all material respects except that (i) Class C shares bear the
expenses of
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higher distribution fees; (ii) certain other class specific expenses will be
borne solely by the class to which such expenses are attributable, including
transfer agent fees attributable to a specific class of shares, printing and
postage expenses related to preparing and distributing materials to current
shareholders of a specific class, registration fees incurred by a specific class
of shares, the expenses of administrative personnel and services required to
support the shareholders of a specific class, litigation or other legal expenses
relating to a class of shares, Trustees' fees or expenses incurred as a result
of issues relating to a specific class of shares and accounting fees and
expenses relating to a specific class of shares; and (iii) each class has
exclusive voting rights with respect to matters relating to its own distribution
arrangements. The net income attributable to Class C shares and the dividends
payable on Class C shares will be reduced by the amount of the incremental
expenses associated with the distribution fee. See "Distribution Plans." Shares
of the Fund purchased prior to May 2, 1995 are Class A shares.
The Fund's alternative sales arrangements permit investors to choose
the method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold his shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur a front-end sales load
and be subject to lower ongoing charges, as discussed below, or to have all of
the initial purchase price invested in the Fund with the investment thereafter
being subject to higher ongoing charges. A salesperson or any other person
entitled to receive any portion of a distribution fee may receive different
compensation for selling Class A or Class C shares.
As an illustration, investors who qualify for reduced sales loads as
described below, might elect the Class A sales load alternative because similar
sales load reductions are not available for purchases under the Class C sales
load alternative. Moreover, shares acquired under the Class A sales load
alternative would be subject to lower ongoing distribution fees as described
below. Investors not qualifying for reduced initial sales loads who expect to
maintain their investment for an extended period of time might also elect the
Class A sales load alternative because over time the accumulated continuing
distribution fees on Class C shares may exceed the difference in initial sales
loads between Class A and Class C shares. Again, however, such investors must
weigh this consideration against the fact that less of their funds will be
invested initially under the Class A sales load alternative. Furthermore, the
higher ongoing distribution fees will be offset to the extent any return is
realized on the additional funds initially invested under the Class C sales load
alternative.
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<PAGE>
Some investors might determine that it would be more advantageous to
utilize the Class C sales load alternative to have more of their funds invested
initially, although remaining subject to higher ongoing distribution fees and,
for a one-year period, being subject to a contingent deferred sales load. For
example, based on estimated fees and expenses, an investor subject to the
maximum 2% initial sales load on Class A shares who elects to reinvest dividends
in additional shares would have to hold the investment in Class A shares
approximately 3 years before the accumulated ongoing distribution fees on the
alternative Class C shares would exceed the initial sales load plus the
accumulated ongoing distribution fees on Class A shares. In this example and
assuming the investment was maintained for more than 3 years, the investor might
consider purchasing Class A shares. This example does not take into account the
time value of money which reduces the impact of the higher ongoing Class C
distribution fees, fluctuations in net asset value or the effect of different
performance assumptions.
In addition to the compensation otherwise paid to securities dealers,
the Adviser may from time to time pay from its own resources additional cash
bonuses or other incentives to selected dealers in connection with the sale of
shares of the Fund. On some occasions, such bonuses or incentives may be
conditioned upon the sale of a specified minimum dollar amount of the shares of
the Fund and/or other funds in the Midwest Group during a specific period of
time. Such bonuses or incentives may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising, sales campaigns and other dealer-sponsored
programs or events.
Class A Shares
Class A shares of the Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Adviser by 5:00 p.m., Eastern time, that day
are confirmed at the public offering price determined as of the close of the
regular session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Adviser by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by MGF
Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's public
offering price. Direct investments received by MGF Service Corp. after 4:00
p.m., Eastern time, and orders received from dealers after 5:00 p.m., Eastern
time, are confirmed at the public offering price next determined on the
following business day.
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<PAGE>
The public offering price of Class A shares applicable to investors
whose accounts are opened after January 31, 1995 is the next determined net
asset value per share plus a sales load as shown in the following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
Less than $100,000 2.00% 2.04% 1.80%
$100,000 but less than $250,000 1.50% 1.52% 1.35%
$250,000 but less than $500,000 1.00% 1.01% .90%
$500,000 but less than $1,000,000 .75% .76% .65%
$1,000,000 or more None* None*
Investors whose accounts were opened prior to February 1, 1995 are subject to a
different table of sales loads as follows:
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
Less than $500,000 1.00% 1.01% 1.00%
$500,000 but less than $1,000,000 .75% .76% .75%
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but
a contingent deferred sales load of .75% may apply with respect to
Class A shares if a commission was paid by the Adviser to a
participating unaffiliated dealer and the shares are redeemed within
twelve months from the date of purchase.
Under certain circumstances, the Adviser may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Adviser retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For initial purchases of Class A shares of $1,000,000 or more made
after October 1, 1995 and subsequent purchases further increasing the size of
the account, a dealer's commission of .75% of the purchase amount may be paid by
the Adviser to participating unaffiliated dealers through whom such purchases
are effected. In determining a dealer's eligibility for such
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<PAGE>
commission, purchases of Class A shares of the Fund may be aggregated with
concurrent purchases of Class A shares of other Midwest Group funds. Dealers
should contact the Adviser concerning the applicability and calculation of the
dealer's commission in the case of combined purchases. An exchange from other
Midwest Group funds will not qualify for payment of the dealer's commission,
unless such exchange is from a Midwest Group fund with assets as to which a
dealer's commission or similar payment has not been previously paid. Redemptions
of Class A shares may result in the imposition of a contingent deferred sales
load if the dealer's commission described in this paragraph was paid in
connection with the purchase of such shares. See "Contingent Deferred Sales
Charge for Certain Purchases of Class A Shares" below.
REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing Class A shares of the load funds distributed by the
Adviser with the amount of his current purchases in order to take advantage of
the reduced sales loads set forth in the table above. Purchases made in any load
fund distributed by the Adviser pursuant to a Letter of Intent may also be
eligible for the reduced sales loads. The minimum initial investment under a
Letter of Intent is $10,000. The load funds currently distributed by the Adviser
are listed in the Exchange Privilege section of this Prospectus. Shareholders
should contact MGF Service Corp. for information about the Right of Accumulation
and Letter of Intent.
PURCHASES AT NET ASSET VALUE. You may purchase Class A shares of the
Fund at net asset value when the payment for your investment represents the
proceeds from the redemption of shares of any other mutual fund which has a
front-end sales load and is not distributed by the Adviser. Your investment will
qualify for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within one year of the
purchase of such shares and no more than sixty days prior to your purchase of
Class A shares of the Fund. To make a purchase at net asset value pursuant to
this provision, you must submit photocopies of the confirmations (or similar
evidence) showing the purchase and redemption of shares of the other fund. Your
payment may be made with the redemption check representing the proceeds of the
shares redeemed, endorsed to the order of the "Adjustable Rate U.S. Government
Securities Fund." The redemption of shares of the other fund is, for federal
income tax purposes, a sale on which you may realize a gain or loss. These
provisions may be modified or terminated at any time. Contact your securities
dealer or the Trust for further information.
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<PAGE>
Banks, bank trust departments and savings and loan associations, in
their fiduciary capacity or for their own accounts, may also purchase Class A
shares of the Fund at net asset value. To the extent permitted by regulatory
authorities, a bank trust department may charge fees to clients for whose
account it purchases shares at net asset value. Federal and state credit unions
may also purchase Class A shares at net asset value.
In addition, Class A shares of the Fund may be purchased at net asset
value by broker-dealers who have a sales agreement with the Adviser, and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees.
Clients of municipal fund advisers, public finance investment
specialists, municipal reinvestment brokers, authorities and trustees may
purchase Class A shares of the Fund at net asset value if the permitted
investment section of the trust indenture can be interpreted with an
accompanying opinion by the issuer or trustee counsel.
Clients of investment advisers and financial planners may also purchase
Class A shares of the Fund at net asset value if their investment adviser or
financial planner has made arrangements to permit them to do so with the Trust
and the Adviser. The investment adviser or financial planner must notify MGF
Service Corp. that an investment qualifies as a purchase at net asset value.
Trustees, directors, officers and employees of the Trust, the Adviser
or MGF Service Corp., including members of the immediate family of such
individuals and employee benefit plans established by such entities, may also
purchase Class A shares of the Fund at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES.
A contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Fund (or shares into which such Class A shares were exchanged)
purchased at net asset value in amounts totaling $1 million or more, if the
dealer's commission described above was paid by the Adviser and the shares are
redeemed within twelve months from the date of purchase. The contingent deferred
sales load will be paid to the Adviser and will be equal to .75% of the lesser
of (1) the net asset value at the time of purchase of the Class A shares being
redeemed or (2) the net asset value of such Class A shares at the time of
redemption. In determining whether the contingent deferred sales load is
payable, it is assumed that shares not subject to the contingent deferred sales
load are the first redeemed followed by
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<PAGE>
other shares held for the longest period of time. The contingent deferred sales
load will not be imposed upon shares representing reinvested dividends or
capital gains distributions, or upon amounts representing share appreciation. If
a purchase of Class A shares is subject to the contingent deferred sales load,
the investor will be so notified on the confirmation for such purchase.
Redemptions of such Class A shares of the Fund held for at least 12
months will not be subject to the contingent deferred sales load and an exchange
of such Class A shares into another Midwest Group fund is not treated as a
redemption and will not trigger the imposition of the contingent deferred sales
load at the time of such exchange. A fund will "tack" the period for which such
Class A shares being exchanged were held onto the holding period of the acquired
shares for purposes of determining if a contingent deferred sales load is
applicable in the event that the acquired shares are redeemed following the
exchange; however, the period of time that the redemption proceeds of such Class
A shares are held in a money market fund will not count toward the holding
period for determining whether a contingent deferred sales load is applicable.
See "Exchange Privilege."
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Adviser may
require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the applicable
sales load and for purposes of the Letter of Intent and Right of Accumulation
privileges, a purchaser includes an individual, his spouse and their children
under the age of 21, purchasing shares for his or their own account; or a
trustee or other fiduciary purchasing shares for a single fiduciary account
although more than one beneficiary is involved; or employees of a common
employer, provided that economies of scale are realized through remittances from
a single source and quarterly confirmation of such purchases; or an organized
group, provided that the purchases are made through a central administration, or
a single dealer, or by other means which result in economy of sales effort or
expense. Contact MGF Service Corp. for additional information concerning
purchases at net asset value or at reduced sales loads.
Class C Shares
Class C 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.
Purchase orders received by dealers prior to
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4:00 p.m., Eastern time, on any business day and transmitted to the Adviser by
5:00 p.m., Eastern time, that day are confirmed at the net asset value
determined as of the close of the regular session of trading on the New York
Stock Exchange on that day. It is the responsibility of dealers to transmit
properly completed orders so that they will be received by the Adviser by 5:00
p.m., Eastern time. Dealers may charge a fee for effecting purchase orders.
Direct purchase orders received by MGF Service Corp. by 4:00 p.m., Eastern time,
are confirmed at that day's net asset value. Direct investments received by MGF
Service Corp. after 4:00 p.m., Eastern time, and orders received from dealers
after 5:00 p.m., Eastern time, are confirmed at the net asset value next
determined on the following business day.
A contingent deferred sales load is imposed on Class C shares if an
investor redeems an amount which causes the current value of the investor's
account to fall below the total dollar amount of purchase payments subject to
the deferred sales load, except that no such charge is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or to the extent the amount redeemed is derived from
increases in the value of the account above the amount of purchase payments
subject to the deferred sales load.
Whether a contingent deferred sales load is imposed will depend on the
amount of time since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the contingent deferred sales load
according to the following schedule:
Year Since Purchase Contingent Deferred
Payment was Made Sales Load
First Year 1%
Thereafter None
In determining whether a contingent deferred sales load is payable, it
is assumed that the purchase payment from which the redemption is made is the
earliest purchase payment (from which a redemption or exchange has not already
been effected). If the earliest purchase from which a redemption has not yet
been effected was made within one year before the redemption, then a deferred
sales load at the rate of 1% will be imposed.
The following example will illustrate the operation of the contingent
deferred sales load. Assume that an individual opens an account and purchases
1,000 shares at $10 per share and that six months later the net asset value per
share is $12 and, during such time, the investor has acquired 50 additional
shares through reinvestment of distributions. If at such time the investor
should redeem 450 shares (proceeds of $5,400), 50 shares will not
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<PAGE>
be subject to the load because of dividend reinvestment. With respect to the
remaining 400 shares, the load is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$4,000 of the $5,400 redemption proceeds will be charged the load. At the rate
of 1%, the contingent deferred sales load would be $40. In determining whether
an amount is available for redemption without incurring a deferred sales load,
the purchase payments made for all Class C shares in the shareholder's account
are aggregated, and the current value of all such shares is aggregated.
All sales loads imposed on redemptions are paid to the Adviser. The
Adviser intends to pay a commission of 1% of the purchase amount to
participating brokers at the time the investor purchases Class C shares.
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Adviser may
require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
SHAREHOLDER SERVICES
Contact MGF Service Corp. (Nationwide call toll-free 800- 543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
Automatic Withdrawal Plan
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional Class A shares of the Fund
while the plan is in effect are generally undesirable because a sales load is
incurred whenever purchases are made.
Tax-Deferred Retirement Plans
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
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-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.
Automatic Investment Plan
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. MGF Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Fund.
Reinvestment Privilege
If you have redeemed shares of the Fund, you may reinvest all or part
of the proceeds without any additional sales load. This reinvestment must occur
within ninety days of the redemption and the privilege may only be exercised
once per year.
HOW TO REDEEM SHARES
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 a proper redemption request in the form
described below, less any applicable contingent deferred sales load. 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.
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<PAGE>
A contingent deferred sales load may apply to a redemption
of Class C shares or to a redemption of certain Class A shares of the Fund
purchased at net asset value. See "How to Purchase Shares."
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 from your account will be sent by mail or by wire within
three business days after receipt of your telephone instructions. IRA accounts
are not redeemable by telephone.
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
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exactly as your name appears on the Trust's account records. If the shares to be
redeemed have a value of $25,000 or more, your signature must be guaranteed by
any of the eligible guarantor institutions outlined above.
Written redemption requests may also direct that the proceeds be
deposited directly in the bank account or brokerage account designated on your
account application for telephone redemptions. Proceeds of redemptions requested
by mail are mailed within three business days following receipt of instructions
in proper form.
BY CHECK. You may establish a special checking account with
the Fund for the purpose of redeeming shares by check. Checks
may be made payable to anyone for any amount, but checks may not
be certified.
When a check is presented to the Custodian for payment, MGF Service
Corp., as your agent, will cause the Fund to redeem a sufficient number of full
and fractional shares in your account to cover the amount of the check. Checks
will be processed at the net asset value on the day the check is presented to
the Custodian for payment.
If the amount of a check is greater than the value of the shares held
in your account, the check will be returned. Shareholders 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. Shares for which certificates have been issued may
not be redeemed by check.
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<PAGE>
THROUGH BROKER-DEALERS. You may also redeem shares by placing a wire
redemption request through a securities broker or dealer. Unaffiliated
broker-dealers may impose a fee on the shareholder for this service. You will
receive the net asset value per share next determined after receipt by the Trust
or its agent of your wire redemption request. It is the responsibility of
broker-dealers to properly transmit wire redemption orders.
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.
If a certificate for shares of the Fund was issued, it must be
delivered to MGF Service Corp., or the dealer in the case of a wire redemption,
duly endorsed or accompanied by a duly endorsed stock power, with the signature
guaranteed by any of the eligible guarantor institutions outlined above.
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 $1,000 (based on actual amounts invested including
any sales load paid, unaffected by market fluctuations), or $250 in the case of
tax-deferred retirement plans, 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.
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<PAGE>
EXCHANGE PRIVILEGE
Shares of the Fund and of any other fund of the Midwest Group of Funds
may be exchanged for each other.
Class A shares of the Fund which are not subject to a contingent
deferred sales load may be exchanged for Class A shares of any other fund and
for shares of any other fund which offers only one class of shares (provided
such shares are not subject to a contingent deferred sales load). 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.
Class C shares of the Fund, as well as Class A shares of the Fund
subject to a contingent deferred sales load, may be exchanged, on the basis of
relative net asset value per share, for shares of any other fund which imposes a
contingent deferred sales load and for shares of any fund which is a money
market fund. A fund will "tack" the period for which the shares being exchanged
were held onto the holding period of the acquired shares for purposes of
determining if a contingent deferred sales load is applicable in the event that
the acquired shares are redeemed following the exchange. The period of time that
shares are held in a money market fund will not count toward the holding period
for determining whether a contingent deferred sales load is applicable.
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
*Tax-Free Intermediate Term Fund Midwest Trust
*Ohio Insured Tax-Free Fund Short Term Government Income Fund
Institutional Government Income Fund
*Intermediate Term Government Income
Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to MGF Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your transaction by telephone (for example during times of unusual
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<PAGE>
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.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash OPtion - income distributions and capital
gains distributions paid in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option 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.
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<PAGE>
An investor who has received in cash any dividend or capital gains
distribution from the Fund may return the distribution within thirty days of the
distribution date to MGF Service Corp. for reinvestment at the net asset value
next determined after its return. The investor or his dealer must notify MGF
Service Corp. that a distribution is being reinvested pursuant to this
provision.
TAXES
The Fund has qualified in all prior years and intends to continue 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 intends to distribute substantially all of its net investment
income and any net realized capital gains to its shareholders. Distributions of
net investment income as well as from net realized short-term capital gains, if
any, are 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. Redemptions
and exchanges of shares of the Fund are taxable events on which a shareholder
may realize a gain or loss.
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. In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions. Shareholders should consult their tax
advisors about the tax effect of distributions and withdrawals from the Fund and
the use of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
OPERATION OF THE FUND
The Fund is a diversified series of Midwest Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 7, 1980. 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.
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<PAGE>
The Trust retains Midwest Group Financial Services, Inc., 312 Walnut
Street, Cincinnati, Ohio 45202 (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 four other series of the Trust, six series of Midwest
Group Tax Free Trust and four series of Midwest Strategic Trust. 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 $50 million; .45% of such assets from $50 million to $150
million; .4% of such assets from $150 million to $250 million; and .375% of such
assets in excess of $250 million.
Hanover Capital Advisors Inc., 90 West Street, New York, New York
("Hanover"), reviews the Fund's portfolio holdings and overall investment
strategies pursuant to a Subadvisory Agreement among the Trust, the Adviser and
Hanover. The Adviser retains Hanover to recommend securities to be purchased for
the Fund and to confer with the Adviser regarding the credit and maturity
guidelines for investments in the Fund's portfolio. The Adviser pays Hanover a
fee equal to the annual rate of .25% of the average value of the Fund's daily
net assets up to $50 million; .225% of such assets from $50 million to $150
million; .2% of such assets from $150 to $250 million; and .1875% of such assets
in excess of $250 million. The fee paid to Hanover is subject to reduction in
the event the Adviser waives or reimburses any portion of its advisory fee in
order to reduce the operating expenses of the Fund. Hanover is a subsidiary of
Hanover Capital Partners Ltd., the controlling shareholders of which are John A.
Burchett and George J. Ostendorf.
Scott Weston, Assistant Vice President-Investments of the Adviser, is
primarily responsible for managing the portfolio of the Fund. Mr. Weston has
been employed by the Adviser since 1992 and has been managing the Fund's
portfolio since March 1996. Mr. Weston was previously employed by Adex
International, Inc. as a cost control manager. Irma N. Tavares, Vice President
of Hanover, is primarily responsible for fulfilling Hanover's contractual
obligations to the Adviser. Ms. Tavares, who has been employed by Hanover since
1989, has been assisting in the management of the Fund's portfolio since its
inception in February 1993.
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 Plans"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer
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<PAGE>
agent and accounting and pricing agent of the Fund, fees and expenses of members
of the Board of Trustees who are not interested persons of the Trust, the cost
of preparing and distributing prospectuses, statements, reports and other
documents to shareholders, expenses of shareholders' meetings and proxy
solicitations, and such extraordinary or non-recurring expenses as may arise,
including litigation to which the Fund may be a party and indemnification of the
Trust's officers and Trustees with respect thereto.
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati,
Ohio, 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 the annual rate of .1% of the average value of the Fund's daily net
assets.
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.
The Adviser and MGF Service Corp. are each a wholly-owned
subsidiary of Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Pursuant to an agreement dated December 10, 1996
between the shareholders of Leshner Financial, Inc. and Countrywide Credit
Industries, Inc. ("CCI"), CCI has agreed to acquire all of the outstanding
common stock of Leshner Financial, Inc. in exchange for newly issued common
stock of CCI. Following such acquisition, which is expected to be consummated on
or about February 28, 1997, Leshner Financial, Inc. will be a wholly-owned
subsidiary of CCI. CCI is a New York Stock Exchange listed company principally
engaged in residential mortgage lending. Following the Acquisition, the
Subadvisory Agreement
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<PAGE>
among the Trust, the Adviser and Hanover, will terminate and Hanover will no
longer provide advisory services to the Fund.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Fund as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Fund. Subject to the requirements of the
Investment Company Act of 1940 and procedures adopted by the Board of Trustees,
the Fund may execute portfolio transactions through any broker or dealer and pay
brokerage commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or (iii) an
affiliated person of which is an affiliated person of the Trust or the Adviser.
Shares of the Fund have equal voting rights and liquidation rights. The
Fund shall vote separately on matters submitted to a vote of the shareholders
except in matters where a vote of all series of the Trust in the aggregate is
required by the Investment Company Act of 1940 or otherwise. Each class of
shares of the Fund shall vote separately on matters relating to its plan of
distribution pursuant to Rule 12b-1 (see "Distribution Plans"). 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 PLANS
CLASS A SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Fund has adopted a plan of distribution (the "Class A Plan") under
which Class A shares may directly incur or reimburse the Adviser for certain
distribution-related expenses, including payments to securities dealers and
others who are engaged in the sale of such shares and who may be advising
investors regarding the purchase, sale or retention of such 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
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<PAGE>
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 such shares.
Pursuant to the Class A Plan, the Fund may make payments to dealers and
other persons, including the Adviser and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Class A shares. For the
fiscal year ended September 30, 1996, Class A shares of the Fund paid $3,119 to
the Adviser to reimburse it for payments made to dealers and other persons who
may be advising shareholders in this regard.
The annual limitation for payment of expenses pursuant to the Class A
Plan is .35% of the Fund's average daily net assets allocable to Class A shares.
Unreimbursed expenditures will not be carried over from year to year. In the
event the Class A Plan is terminated by the Fund in accordance with its terms,
the Fund will not be required to make any payments for expenses incurred by the
Adviser after the date the Class A Plan terminates.
CLASS C SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Fund has adopted a plan of distribution (the "Class C Plan") which
provides for two categories of payments. First, the Class C Plan provides for
the payment to the Adviser of an account maintenance fee, in an amount equal to
an annual rate of .25% of the Fund's average daily net assets allocable to Class
C shares, which may be paid to other dealers based on the average value of such
shares owned by clients of such dealers. In addition, the Class C shares may
directly incur or reimburse the Adviser in an amount not to exceed .75% per
annum of the Fund's average daily net assets allocable to Class C shares for
expenses incurred in the distribution and promotion of the Fund's Class C
shares, including payments to securities dealers and others who are engaged in
the sale of such shares and who may be advising investors regarding the
purchase, sale or retention of such 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
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<PAGE>
promotional activities as the Trust may, from time to time, deem advisable; and
any other expenses related to the distribution of such shares.
Unreimbursed expenditures will not be carried over from year to year.
In the event the Class C Plan is terminated by the Fund in accordance with its
terms, the Fund will not be required to make any payments for expenses incurred
by the Adviser after the date the Class C Plan terminates. The Adviser may make
payments to dealers and other persons in an amount up to .75% per annum of the
average value of Class C shares owned by their clients, in addition to the .25%
account maintenance fee described above.
GENERAL. Pursuant to the Plans, the Fund may also make payments to
banks or other financial institutions that provide shareholder services and
administer shareholder accounts. The Glass-Steagall Act prohibits banks from
engaging in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not been
clearly defined by the courts or appropriate regulatory agencies, management of
the Trust believes that the Glass- Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Fund, no preference will be shown for
such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules 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 AND PUBLIC OFFERING PRICE
On each day that the Trust is open for business, the share price (net
asset value) of Class C shares and the public offering price (net asset value
plus applicable sales load) of Class A shares of the Fund are determined as of
the close of the regular
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<PAGE>
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.
The Fund's portfolio securities 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. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its "average annual total
return." The Fund may also advertise "yield." Both yield and average annual
total return figures are based on historical earnings and are not intended to
indicate future performance. Total return and yield are computed separately for
Class A and Class C shares. The yield of Class A shares is expected to be higher
than the yield of Class C shares due to the higher distribution fees imposed on
Class C shares.
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 and, for
Class A shares, the deduction of the current maximum sales load from the initial
investment. 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
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<PAGE>
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." These nonstandardized returns do
not include the effect of the applicable sales load which, if included, would
reduce total return. A nonstandardized 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.
From time to time, the Fund may advertise its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may also compare
its performance to that of other selected mutual funds, averages of the other
mutual funds within its category as determined by Lipper, or recognized
indicators. In connection with a ranking, the Fund may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Fund may also present its performance and other investment
characteristics, such as volatility or a temporary defense posture, in light of
the Adviser's view of current or past market conditions or historical trends.
Further information about the Fund's performance is contained in the
Trust's annual report which can be obtained by shareholders at no charge by
calling MGF Service Corp. (Nationwide call toll-free 800-543-0407; in Cincinnati
call 629-2050) or by writing to the Trust at the address on the front of this
Prospectus.
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<PAGE>
ACCOUNT APPLICATION
Please mail account application to:
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
ADJUSTABLE RATE U.S.
GOVERNMENT SECURITIES FUND
o A SHARES (27)
o C SHARES (10)
ACCOUNT NO. __________________
(For Fund Use Only)
FOR BROKER/DEALER USE ONLY
Firm Name:_____________________________________
Home Office Address:___________________________
Branch Address:________________________________
Rep Name & No.:________________________________
Rep Signature:_________________________________
- - --------------------------------------------------------------------
Initial Investment of $_____________________($1,000 Minimum)
o Check or draft enclosed payable to the Fund.
o Bank Wire From:_________________________________________________
o Exchange From:__________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX L.D.#
____________________________________________ ___________________
Name of Individual, Corporation, (In case of custodial
Organization, or Minor, etc. account please list
minor's S.S.#)
____________________________________________ Citizenship: o U.S.
Name of Joint Tenant, Partner, Custodian o Other
ADDRESS PHONE
____________________________________________ ( )______________
Street or P.O. Box Business Phone
____________________________________________ ( )______________
City State Zip Home Phone
Check Appropriate Box: o Individual
o Joint Tenant (Right of survivorship presumed) o Partnership
o Corporation o Trust o Custodial o Non-Profit o Other
Occupation and Employer Name/Address________________________________
Are you an associated person of an NASD member? o Yes o No
- - --------------------------------------------------------------------
<PAGE>
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I
certify that the Taxpayer Identification Number listed above is my
correct number. The Internal Revenue Service does not require your consent to
any provision of this document other than the certifications required to
avoid backup withholding. Check box if appropriate:
o I am exempt from backup withholding under the provisions of
section 3406(a)(1)(c) of the Internal Revenue Code; or I am not
subject to backup withholding because I have not been notified
that I am subject to backup withholding as a result of a failure
to report all interest or dividends; or the Internal Revenue
Service has notified me that I am no longer subject to backup
withholding.
o I certify under penalties of perjury that a Taxpayer
Identification Number has not been issued to me and I have mailed
or delivered an application to receive a Taxpayer Identification
Number to the Internal Revenue Service Center or Social Security
Administration Office. I understand that if I do not provide a
Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
- - --------------------------------------------------------------------
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be
assigned.)
o Share Option -- Income distributions and capital gains
distributions automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital
gains distributions paid in cash, long term capital gains
distributions reinvested in additional shares.
o Cash Option -- Income distributions and capital gains
distributions paid in cash.
- - --------------------------------------------------------------------
REDEMPTION OPTIONS
I (we) authorize the Trust or MGF Service Corp. to act upon
instructions received by telephone, or upon receipt of and in the
amounts of checks as described below (if checkwriting is selected),
to have amounts withdrawn from my (our) account in any fund in the
Midwest Group (see prospectus for limitations on this option) and:
o WIRED ($1,000 minimum OR MAILED to my (our) bank account
designated below. I (we) further authorize the used of automated
cash transfers to and from the account designated below.
NOTE: For wire redemptions, the indicated bank should be a
commercial bank. PLEASE ATTACH A VOIDED CHECK FOR THE ACCOUNT.
Bank Account Number___________ Bank Routing Transit Number________
Name of Account Holder_____________________________________________
Bank Name_____________________ Bank Address_______________________
City State
<PAGE>
o CHECKWRITING (A signature card must be completed)
...to deposit the proceeds of such redemptions in the applicable
Midwest Group Pay Through Draft Account (PTDA) or otherwise arrange
for application of such proceeds to payment of said checks. I (we)
authorize the persons whose signatures appear on the PTDA signature
card to draw checks on the PTDA and to cause the redemption of my
(our) shares of the Trust. I (we) agree to be bound by the Rules
and Regulations for the Midwest Group Pay Through Draft Account as
such Rules and Regulations may be amended from time to time
- - --------------------------------------------------------------------
REDUCED SALES CHARGES
Right of Accumulation: I apply for Right of Accumulation subject to
the Agent's confirmation of the following holdings of eligible load
funds of the Midwest Group of Funds.
ACCOUNT NUMBER/NAME ACCOUNT NUMBER/NAME
______________________________ __________________________________
______________________________ __________________________________
Letter of Intent: (Complete the Right of Accumulation section if
related accounts are being applied to your Letter of Intent.)
o l agree to the Letter of Intent in the current Prospectus of
Midwest Trust. Although I am not obligated to purchase, and the
Trust is not obligated to sell, I intend to invest over a 13 month
period beginning ______________________ 19 _______ (Purchase Date
of not more than 90 days prior to this Letter) an aggregate amount
in the load funds of the Midwest Group of Funds at least equal to
(check appropriate box):
o $100,000 o $250,000 o $500,000 o $1,000,000
- - --------------------------------------------------------------------
SIGNATURES
By signature below each investor certifies that he has received a
copy of the Fund's current Prospectus, that he is of legal age, and
that he has full authority and legal capacity for himself or the
organization named below, to make this investment and to use the
options selected above. The investor appoints MGF Service Corp. as
his agent to enter orders for shares whether by direct purchase or
exchange, to receive dividends and distributions for automatic
reinvestment in additional shares of the Fund for credit to the
investor's account and to surrender for redemption shares held in
the investor's account in accordance with any of the procedures
elected above or for payment of service charges incurred by the
investor. The investor further agrees that MGF Service Corp. can
cease to act as such agent upon ten days' notice in writing to the
investor at the address contained in this Application. The investor
hereby ratifies any instructions given pursuant to this Application
and for himself and his successors and assigns does hereby release
MGF Service Corp., Midwest Trust, Midwest Group Financial Services,
Inc., and their respective officers, employees, agents and
affiliates from any and all liability in the performance of the acts
instructed herein. Neither the Trust, MGF Service Corp., nor their
respective affiliates will be liable for complying with telephone
instructions they reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such telephone instructions.
The investor(s) will bear the risk of any such loss. The Trust or
MGF Service Corp., or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust
and/or MGF Service Corp. do not employ such procedures, they may be
liable for losses due to unauthorized or fraudulent instructions.
These procedures may include, among others, requiring forms of
personal identification prior to acting upon telephone instructions,
providing written confirmation of the transactions and/or tape
recording telephone instructions.
<PAGE>
________________________________________________________________
Signature of Individual Owner, Corporate Officer, Trustee, etc.
________________________________________________________________
Signature of Joint Owner, if Any
___________________________________________________ ___________
Title of Corporate Officer, Trustee, etc. Date
NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE
THE RESOLUTION FORM ON THE REVERSE SIDE.
UNLESS OTHERWISE SPECIFIED, EACH JOINT OWNER SHALL HAVE FULL
AUTHORITY TO ACT ON BEHALF OF THE ACCOUNT.
- - --------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (COMPLETE FOR INVESTMENTS INTO THE FUND)
The Automatic Investment Plan is available for all established
accounts of Midwest Trust. There is no charge for this service, and
it offers the convenience of automatic investing on a regular basis.
The minimum investment is $50.00 per month. For an account that is
opened by using this Plan, the minimum initial and subsequent
investments must be $50.00. Though a continuous program of 12
monthly investments is recommended, the Plan may be
discontinued by the shareholder at any time.
Please invest $ _________________per month in the Fund.
ABA Routing Number__________________
____________________________________
FI Account Number
o Checking Account
o Savings Account
____________________________________
Name of Financial Institution (FI)
____________________________________
City State
Please make my automatic investment on:
o the last business day of each month
o the 15th day of each month
o both the 15th and last business day
X_____________________________________ X___________________________
(Signature of Depositor EXACTLY as (Signature of Joint
it appears on FI Records) Tenant - if any)
(Joint Signatures are required when bank account is in joint names.
Please sign exactly as signature appears on your FI's records.)
PLEASE ATTACH A VOIDED CHECK FOR THE AUTOMATIC INVESTMENT PLAN.
<PAGE>
INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which MGF Service
Corp. ("MGF") has put into effect, by which amounts, determined by
your depositor, payable to the Fund, for purchase of shares of the
Fund, are collected by MGF, MGF hereby agrees:
MGF will indemnify and hold you harmless from any liability to any
person or persons whatsoever arising out of the payment by you of
any amount drawn by the Fund to its own order on the account of your
depositor or from any liability to any person whatsoever arising out
of the dishonor by you whether with or without cause or
intentionally or inadvertently, of any such amount. MGF will
defend, at its own cost and expense, any action which might be
brought against you by any person or persons whatsoever because of
your actions taken pursuant to the foregoing request or in any
manner arising by reason of your participation in this arrangement.
MGF will refund to you any amount erroneously paid by you to the
Fund if the claim for the amount of such erroneous payment is made
by you within six (6) months from the date of such erroneous
payment; your participation in this arrangement and that of the Fund
may be terminated by thirty (30) days written notice from either
party to the other.
- - --------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND)
This is an authorization for you to withdraw $___________________
from my mutual fund account beginning the last business day of the
month of _____________.
Please Indicate Withdrawal Schedule (Check One):
o MONTHLY -- Withdrawals will be made on the last business day of
each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30
and 12/31.
o ANNUALLY -- Please make withdrawals on the last business day of
the month of:_________________.
Please Select Payment Method (Check One):
o EXCHANGE: Please exchange the withdrawal proceeds into another
Midwest account number: ____ ____ -- ____ ____ ____ ____
____ ____ -- ____
o CHECK: Please mail a check for my withdrawal proceeds to the
mailing address on this account.
o ACH TRANSFER: Please send my withdrawal proceeds via ACH transfer
to my bank checking or savings account as indicated below. I
understand that the transfer will be completed in two to three
business days and that there is no charge.
o BANK WIRE: Please send my withdrawal proceeds via bank wire, to
the account indicated below. I understand that the wire will be
completed in one business day and that there is an $8.00 fee.
PLEASE ATTACH A VOIDED CHECK FOR ACH OR BANK WIRE
_________________________________ ______________________________
Bank Name Bank Address
_________________________________ ______________________________
Bank ABA# Account # Account Name
<PAGE>
o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a
check for my withdrawal proceeds to the mailing address below:
Name of payee_____________________________________________________
Please send to:___________________________________________________
Street address City State Zip
- - --------------------------------------------------------------------
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other
Organizations)
RESOLVED: That this corporation or organization become a shareholder
of the Adjustable Rate U.S. Government Securities Fund (the Fund)
and that___________________________________________________________
is (are) hereby authorized to complete and execute the Application
on behalf of the corporation or organization and to take any action
for it as may be necessary or appropriate with respect to its
shareholder account with the Fund, and it is FURTHER RESOLVED: That
any one of the above noted officers is authorized to sign any
documents necessary or appropriate to appoint MGF Service Corp. as
redemption agent of the corporation or organization for shares of
the Fund, to establish or acknowledge terms and conditions governing
the redemption of said shares and to otherwise implement the
privileges elected on the Application, and it is
(If checkwriting privilege is not desired, please cross out the
following resolution.)
FURTHER RESOLVED: That the corporation or organization participate
in the Midwest Group Pay Through Draft Account (PTDA) and that until
otherwise ordered in writing, MGF Service Corp. is authorized to
make redemptions of shares held by the corporation or organization,
and to make payment from PTDA upon and according to the check,
draft, note or order of this corporation or organization when signed
by
____________________________________________________________________
and to receive the same when so signed to the credit of, or payment
to, the payee or any other holder without inquiry as to the
circumstances of issue or the disposition or proceeds, whether drawn
to the individual order or tendered in payment of individual
obligations of the persons above named or other officers of this
corporation or organization or otherwise.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity
with the Charter and By-Laws or other empowering documents of the
___________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of___________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees
of the organization or corporation duly called and held on
_____________ at which a quorum was present and acting throughout,
and that the same are now in full force and effect.
<PAGE>
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 TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
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
- 38 -
<PAGE>
TABLE OF CONTENTS
Expense Information . . . . . . . . . . . . . . . . . .
Financial Highlights. . . . . . . . . . . . . . . . . .
Investment Objective and Policies . . . . . . . . . . .
How to Purchase Shares. . . . . . . . . . . . . . . . .
Shareholder Services. . . . . . . . . . . . . . . . . .
How to Redeem Shares. . . . . . . . . . . . . . . . . .
Exchange Privilege. . . . . . . . . . . . . . . . . . .
Dividends and Distributions . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Operation of the Fund . . . . . . . . . . . . . . . . .
Distribution Plans. . . . . . . . . . . . . . . . . . .
Calculation of Share Price and Public Offering Price. .
Performance Information . . . . . . . . . . . . . . . .
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 39 -
<PAGE>
PROSPECTUS
February 1, 1997
Midwest Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
GLOBAL BOND FUND
The Global Bond Fund (the "Fund"), a separate series of Midwest
Trust, seeks high total return, through both income and capital
appreciation. The Fund invests primarily in high-grade domestic and
foreign fixed-income securities.
The Fund is a non-diversified series and may invest a significant
percentage of its assets in a single issuer. Therefore, an investment
in the Fund may be riskier than an investment in other types of mutual
funds.
The Fund offers two classes of shares: Class A shares (sold
subject to a maximum 4% front-end sales load and a 12b-1 fee of up to
.35% of average daily net assets) and Class C shares (sold subject to
a 1% contingent deferred sales load for a one-year period and a 12b-1
fee of up to 1% of average daily net assets). Each Class A and Class
C share of the Fund represents identical interests in the Fund's
investment portfolio and has the same rights, except that (i) Class C
shares bear the expenses of higher distribution fees, which will cause
Class C shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares; (ii) certain other
class specific expenses will be borne solely by the class to which
such expenses are attributable; and (iii) each class has exclusive
voting rights with respect to matters relating to its own distribution
arrangements.
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.
Rogge Global Partners plc (the "Adviser") manages the Fund's
investments under the supervision of Midwest Group Financial Services,
Inc. (the "Manager"). See "Operation of the Fund."
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, 1997 has been filed with the Securities
and Exchange Commission and is hereby incorporated by reference in its
entirety. A copy of the Statement of Additional Information can be
obtained at no charge by calling one of the numbers listed below.
- -----------------------------------------------------------------
For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . 800-543-0407
Cincinnati . . . . . . . . . . . . . . . . . . . 513-629-2050
- -------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- 2 -
<PAGE>
EXPENSE INFORMATION
Class A Class C
Shares Shares
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . 4% None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price). None* 1%
Sales Load Imposed on Reinvested Dividends. . None None
Exchange Fee. . . . . . . . . . . . . . . . . None None
Redemption Fee. . . . . . . . . . . . . . . . None** None**
* Purchases at net asset value of amounts totaling $1 million or more
may be subject to a contingent deferred sales load of .75% if a
redemption occurred within 12 months of purchase and a commission was
paid by the Manager to a participating unaffiliated dealer.
** 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)
Class A Class C
Shares Shares
------- -------
Management Fees After Waivers(A) ..................... .67% .67%
12b-1 Fees(B) ........................................ .03% .43%
Other Expenses After Reimbursements .................. .65%(C) .90%
Total Fund Operating Expenses After .................. 1.35% 2.00%
Waivers and Expense Reimbursements(D)
(A) Absent waivers of management fees, such fees would have been .70% for
the fiscal year ended September 30, 1996.
(B) Class A shares may incur 12b-1 fees in an amount up to .35% of average
net assets and Class C shares may incur 12b-1 fees in an amount up to
1.00% of average net assets. 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 expense reimbursements by the Manager, other expenses would have
been .77% for Class A shares for the fiscal year ended September 30,
1996.
(D) Absent waivers of management fees and expense reimbursements by the
Manager, total Fund operating expenses would have been 1.50% and 2.03%
for Class A and Class C shares, respectively, for the fiscal year ended
September 30, 1996.
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 amounts incurred during the most recent 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
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the Class A Class C
end of each time period: Shares Shares
1 Year $ 53 $ 30
3 Years 81 63
5 Years 111 108
10 Years 196 233
<PAGE>
FINANCIAL HIGHLIGHTS
The following information, which has been audited by Arthur Andersen LLP,
is an integral part of the audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of
September 30, 1996 and related auditors' report appear in the Statement of
Additional Information of the Fund, which can be obtained by shareholders at no
charge by calling MGF Service Corp. (Nationwide call toll-free 800-543-0407, in
Cincinnati call 629-2050) or by writing to the Trust at the address on the front
of this Prospectus.
Per Share Data for a Share Outstanding Throughout Each Period
<TABLE>
<C> <C> <C> <C> <C>
CLASS A CLASS C
Year Ended Period Ended Year Ended Period Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995(A) 1996 1995(A)
---- ---- ---- ----
Net asset value at beginning of period...............10.64 $10.00 $10.59 $10.00
----- ------ ------ ------
Income from investment operations:
Net investment income......................... 0.57 0.35 0.51 0.38
Net realized and unrealized gains (losses) on
investments and foreign currency............. (0.05) 0.64 (0.08) 0.57
----- ---- ------ ----
Total from investment operations..................... 0.52 0.99 0.43 0.95
---- ---- ------ -----
Less distributions:
Dividends from net investment income..............(0.13) (0.35) (0.10) (0.36)
------ ------ ------ ------
Total distributions................................. (0.13) (0.35) (0.10) (0.36)
------ ------- ------- ------
Net asset value at end of period................... $11.03 $10.64 $10.92 $10.59
====== ====== ====== ======
Total return(B)..................................... 4.88% 14.89%(D) 4.10% 14.25%(D)
======= ======== ======= ======
Net assets at end of period (000's)................ $12,841 $13,297 $5,847 $4,518
======= ======= ======= =======
Ratio of expenses to average net assets(C)........... 1.35% 1.33%(D) 2.00% 1.98%(D)
Ratio of net investment income to average
net assets...................................... 4.97% 4.30%(D) 4.34% 3.70%(D)
Portfolio turnover rate .............................. 235% 130%(D) 235% 130%(D)
(A) Represents the period from initial public offering of shares (February 1,1995) through September 30, 1995.
(B) The total returns shown do not include the effect of applicable sales loads.
(C) Absent fee waivers and expense reimbursements by the Manager, the ratios of expenses to average net assets
would have been 1.50% and 2.47%(D) for Class A shares and 2.03% and 3.45%(D) for Class C shares for the
periods ended September 30, 1996 and 1995, respectively.
(D) Annualized.
</TABLE>
- 4 -
<PAGE>
INVESTMENT OBJECTIVE, INVESTMENT POLICIES AND RISK CONSIDERATIONS
The Fund is a series of Midwest Trust (the "Trust"). The Fund seeks
high total return, through both income and capital appreciation. The Fund seeks
to achieve its investment objective by investing primarily in high-grade
domestic and foreign fixed-income securities. 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 may be changed by the
Board of Trustees without shareholder approval, but only after notification has
been given to shareholders and after this Prospectus has been revised
accordingly. If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. 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.
Under normal circumstances, at least 65% of the Fund's total assets
will be invested in domestic and foreign bonds issued by governments,
corporations and supranational organizations such as the World Bank, Asian
Development Bank, European Investment Bank and European Economic Community.
Bonds are viewed by the Fund to include fixed-income securities of any maturity.
Investments of the Fund will be geographically concentrated in the countries
included in the Salomon Brothers World Government Bond Index: Australia,
Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain,
Sweden, the United Kingdom and the United States. Under normal market
conditions, investments will be made in a minimum of three countries, one of
which may be the United States. For temporary defensive purposes, the Fund may
invest in securities of only one country, including the United States. The Fund
may invest in non-U.S. dollar denominated securities. The Fund may utilize a
variety of currency hedging techniques in order to reduce volatility resulting
from currency exchange rate fluctuations.
The Fund may invest up to 10% of its total assets in global bonds
issued by emerging countries. The emerging countries in which the Fund may
invest currently include Argentina, Brazil, Chile, Columbia, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Singapore, Thailand and Venezuela.
Such markets tend to be in the less economically developed regions of the world.
General characteristics of emerging countries also include lower degrees of
political stability, a high demand for capital investment, a high dependence on
export markets for their major industries, a need to develop basic economic
infrastructures and rapid economic growth. The Adviser believes that investments
in bonds issued in emerging countries offer the opportunity for significant
long-term investment returns; however, these investments involve certain risks.
- 5 -
<PAGE>
The Fund may engage in various hedging techniques to seek to hedge all
or a portion of its assets against market value changes resulting from changes
in security prices, interest rates, currency exchange rates or other factors
that affect the value of the Fund's portfolio. Hedging is a means of attempting
to offset, or neutralize, the price movement of an investment by making another
investment, the price of which should tend to move in the opposite direction
from the original investment. The hedging techniques which may be used by the
Fund include buying and selling put and call options, buying and selling futures
contracts and entering into forward currency exchange contracts.
It is anticipated that under normal circumstances the Fund's
dollar-weighted average maturity will be ten years or less, although the Fund
may invest in securities of any maturity, provided that such obligations meet
the Fund's quality standards. The Fund's quality standards limit its investments
to those rated within the three highest grades assigned by Moody's Investors
Services, Inc. (Aaa, Aa or A), Standard & Poor's Ratings Group (AAA, AA or A) or
Fitch Investors Services, Inc. (AAA, AA or A), or unrated securities determined
by the Adviser to be of comparable quality.
For defensive purposes, the Fund may temporarily hold all or a portion
of its assets in short-term obligations such as bank debt instruments
(certificates of deposit, bankers' acceptances and time deposits), commercial
paper, domestic and foreign Government obligations having a maturity of less
than one year or repurchase agreements. The Fund's quality standards limit its
investments in short-term obligations to those which are rated within the two
highest grades by Moody's (Prime-1 or Prime-2), Standard & Poor's (A-1 or A-2)
or Fitch (Fitch-1 or Fitch-2). The Statement of Additional Information contains
a description of Moody's, Standard & Poor's and Fitch ratings.
It is anticipated that by investing in a portfolio of foreign
fixed-income securities in markets that have historically had a low correlation
with the U.S. fixed-income market (when considering the aggregate impact of both
fluctuations in currencies and interest rates), the Fund will achieve a less
volatile net asset value than is characteristic of mutual funds that invest
primarily in fixed-income obligations of a single market denominated in a single
currency. The decision to invest in a given bond market is normally made in
tandem with the decision to invest in the related currency. Generally, the
factors used to determine the relative attractiveness of one market (currency)
versus another are long-term in nature and, therefore, the core structure of the
Fund's portfolio will remain relatively stable over time. In order to reduce the
volatility of short-term investment returns, short-term currency risk is managed
through currency hedging.
- 6 -
<PAGE>
Hedging Techniques
Unless otherwise indicated, the Fund's Adviser may engage in the
following hedging techniques to seek to hedge all or a portion of the Fund's
assets against market value changes resulting from changes in securities prices,
interest rates and currency fluctuations. Hedging is a means of attempting to
offset, or neutralize, the price movement of an investment by making another
investment, the price of which should tend to move in the opposite direction
from the original investment. The imperfect correlation in price movement
between an option and the underlying financial instrument and/or the costs of
implementing such an option may limit the effectiveness of the hedging strategy.
PUT AND CALL OPTIONS. The Fund may write (sell) covered put and call
options as a means of enhancing its return and may buy put and call options
written by others covering securities, futures contracts and foreign currencies
to attempt to provide protection against the adverse effects of anticipated
changes in the prices of such instruments. The Fund may write covered call
options as a means of enhancing its return through the receipt of premiums when
the Adviser determines that the underlying securities, futures contracts or
foreign currencies have achieved their potential for appreciation. However, by
writing such options, the Fund forgoes the opportunity to profit from an
increase in the market price of the underlying security, futures contract or
foreign currency above the exercise price except insofar as the premium
represents such a profit. The Fund may also seek to earn additional income
through receipt of premiums by writing covered put options. The risk involved in
writing such options is that there could be a decrease in the market value of
the underlying security, futures contract or foreign currency. If this occurred,
the option could be exercised and the underlying instrument would then be sold
to the Fund at a higher price than its then current market value. The Fund may
purchase put and call options to attempt to provide protection against adverse
price effects from anticipated changes in prevailing prices of securities,
futures contracts or foreign currencies. The purchase of a put option protects
the value of portfolio holdings in a falling market, while the purchase of a
call option protects cash reserves from a failure to participate in a rising
market. In purchasing a call option, the Fund would be in a position to realize
a gain if, during the option period, the price of the security, futures contract
or foreign currency increased by an amount greater than the premium paid. It
would realize a loss if the price of the security, futures contract or foreign
currency decreased or remained the same or did not increase during the period by
more than the amount of the premium. If a put or call option purchased by the
Fund were permitted to expire without being sold or exercised, its premium would
represent a realized loss to the Fund. When writing put
- 7 -
<PAGE>
options the Fund will be required to segregate cash and/or liquid high-grade
debt securities to meet its obligations. When writing call options the Fund will
be required to own the underlying financial instrument or segregate with its
Custodian cash and/or short-term high quality securities to meet its obligations
under written calls. By so doing, the Fund's ability to meet current
obligations, to honor redemptions or to achieve its investment objective may be
impaired. The staff of the Securities and Exchange Commission has taken the
position that over-the-counter options and the assets used as "cover" for
over-the-counter options are illiquid securities.
FUTURES CONTRACTS. The Fund may buy and sell futures contracts as a
hedge to protect the value of the Fund's portfolio against anticipated changes
in interest rates, securities prices and foreign currencies. There are several
risks in using futures contracts. One risk is that futures prices could
correlate imperfectly with the behavior of cash market prices of the financial
instrument being hedged so that even a correct forecast of general price trends
may not result in a successful transaction. Another risk is that the Fund's
Adviser may be incorrect in its expectation of future prices of the underlying
financial instrument. There is also a risk that a secondary market in the
obligations that the Fund holds may not exist or may not be adequately liquid to
permit the Fund to close out positions when it desires to do so. When buying or
selling futures contracts the Fund will be required to segregate cash and/or
liquid high-grade debt obligations to meet its obligations under these types of
financial instruments. By so doing, the Fund's ability to meet current
obligations, to honor redemptions or to operate in a manner consistent with its
investment objective may be impaired.
FORWARD CURRENCY EXCHANGE CONTRACTS. When the Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may attempt to hedge some portion or all of this
anticipated risk by entering into a forward contract to sell an amount of
foreign currency approximating the value of some or all of the Fund's portfolio
obligations denominated in such foreign currency. It may also enter into such
contracts to protect against loss between trade and settlement dates resulting
from changes in foreign currency exchange rates. Such contracts will also have
the effect of limiting any gains to the Fund between trade and settlement dates
resulting from changes in such rates.
Risk Factors
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, foreign
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exchange conditions, quality ratings and other factors beyond the control of the
Adviser. The Fund's portfolio securities 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.
The Fund may invest in securities which are rated at the time of
purchase within the three highest grades assigned by Moody's, Standard & Poor's
or Fitch. Subsequent to its purchase by the Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. In the event a security's rating is reduced below the Fund's minimum
requirements, the Fund will sell the security, subject to market conditions and
the Adviser's assessment of the most opportune time for sale. Although lower
rated securities will generally provide higher yields than higher rated
securities of similar maturities, they are subject to a greater degree of market
fluctuation. The lower rating also reflects a greater possibility that changing
circumstances may impair the ability of the issuer to make timely payments of
interest and principal. In addition, securities with longer maturities generally
offer both higher yields and greater exposure to market fluctuation from changes
in interest rates. Consequently, investors in the Fund should be aware that
there is a possibility of greater fluctuation in the Fund's net asset value.
The Fund is a non-diversified fund under the Investment
Company Act of 1940. Thus, its investments may be more concentrated in fewer
issuers than those of a diversified fund. This concentration may cause greater
fluctuation in the Fund's net asset value. As the Fund intends to comply with
Subchapter M of the Internal Revenue Code, it may invest up to 50% of its assets
at the end of each quarter of its fiscal year in as few as two issuers, provided
that no more than 25% of the assets are invested in one issuer. With respect to
the remaining 50% of its assets at the end of each quarter, it may invest no
more than 5% in one issuer.
INVESTMENTS IN FOREIGN OBLIGATIONS. Where investments in
foreign obligations are made in currencies of foreign countries, the value of
the Fund's assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency exchange rates, currency restrictions and in
exchange control regulations. While the Fund will attempt to hedge against
fluctuations in exchange rates between the U.S. dollar and other currencies in
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which the Fund invests, the Fund may nevertheless incur losses from currency
translation effects. Generally, an increase in the value of a foreign currency
versus the U.S. dollar will have a positive effect on the Fund's return while a
decline in the value of a foreign currency versus the U.S. dollar will have a
negative impact on the Fund. Foreign investments may be subject to special
risks, including future political and economic developments and the possibility
of seizure or nationalization of companies, imposition of withholding taxes on
income, establishment of exchange controls or adoption of other restrictions,
less governmental supervision of securities markets, reduced publicly available
information concerning issuers, and the lack of uniform accounting, auditing and
financial reporting standards that might affect an investment adversely.
Moreover, obligations issued by many foreign companies may be less liquid and
their prices more volatile than obligations issued by U.S. companies. The
settlement practices in foreign countries may include delays and subject the
Fund to risk of loss not customary in U.S. markets. Investment in foreign
obligations may also result in higher expenses due to the cost of converting
foreign currency into U.S. dollars, the payment of fixed brokerage commissions
on foreign exchanges, which generally are higher than commissions on U.S.
exchanges, and the expense of maintaining securities with foreign custodians.
EMERGING MARKETS. The risks of foreign investing are of
greater concern in the case of investments in emerging markets which may exhibit
greater price volatility and have less liquidity. Furthermore, the economies of
emerging market countries generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be adversely affected by
trade barriers, managed adjustments in relative currency values, and other
protectionist measures applied internally or imposed by the countries with which
they trade. These emerging market economies also have been and may continue to
be adversely affected by economic conditions in the countries with which they
trade.
CURRENCY EXPOSURE. Because of exchange rate movements, the
net asset value of the Fund is likely to be more volatile than funds which
invest only in U.S. dollar-denominated securities. As the U.S. dollar
strengthens relative to a given foreign currency, the value of a portfolio
security denominated in that currency will fall. Conversely, when the U.S.
dollar weakens relative to a currency, the value of a portfolio security in that
currency will rise. Therefore, the greater the level of a fund's currency
exposure, the greater its risk and return potential. By actively managing
currency exposure, the Adviser attempts to insulate portfolios from the effect
of currency fluctuations, or profit from them. There is, of course, no guarantee
the Adviser will be successful in this regard.
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<PAGE>
HEDGING TECHNIQUES. The Fund's ability to establish and close out
positions in futures contracts and options will be subject to the existence of a
liquid secondary market. Although the Fund generally will purchase or sell only
those futures contracts and options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular futures contract or option or at any
particular time.
Transactions in options involve special risks. The Fund may not be able
to enter into a closing transaction to cancel its obligations with respect to
the options it has written or purchased. If an option purchased by the Fund
expires unexercised, the Fund will lose the premium it paid. In addition, the
Fund could suffer a loss if the premium paid by the Fund in a closing
transaction exceeds the premium income it received. When the Fund writes a call
option, its ability to participate in the capital appreciation of the underlying
obligation is limited.
Other Investment Techniques
The Fund may also engage in the following investment techniques, each
of which may involve certain risks:
U.S. GOVERNMENT OBLIGATIONS. "U.S. Government obligations"
include securities which are issued or guaranteed by the United States Treasury,
by various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. Other U.S. Government obligations may or may
not be backed by the full faith and credit of the United States. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States in the event the agency or instrumentality does not meet its
commitments. Shares of the Fund are not guaranteed or backed by the United
States Government.
DELAYED SETTLEMENT TRANSACTIONS. Obligations issued on a when-issued or
to-be-announced basis are settled by delivery and payment after the date of the
transaction, usually within 15 to 45 days. In a to-be-announced transaction, the
Fund has committed to purchasing or selling securities for which all specific
information is not yet known at the time of the trade, particularly the face
amount in transactions involving mortgage-related securities. The Fund will only
make commitments to
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purchase obligations on a when-issued or to-be-announced basis with the
intention of actually acquiring the obligations, but the Fund may sell these
securities before the settlement date if it is deemed advisable as a matter of
investment strategy or in order to meet its obligations, although it would not
normally expect to do so. The Fund will not enter into a delayed settlement
transaction which settles in more than 120 days.
Purchases of securities on a when-issued or to-be-announced basis are
subject to market fluctuations and their current value is determined in the same
manner as other portfolio securities. When effecting such purchases for the
Fund, a segregated account of cash, U.S. Government obligations or other liquid
high-grade debt obligations of the Fund in an amount sufficient to make payment
for the portfolio securities to be purchased will be maintained with the Fund's
Custodian at the trade date and valued daily at market for the purpose of
determining the adequacy of the securities in the account. If the market value
of segregated securities declines, additional cash or securities will be
segregated on a daily basis so that the market value of the Fund's segregated
assets will equal the amount of the Fund's commitments to purchase when-issued
obligations and securities on a to-be-announced basis. The Fund's purchase of
securities on a when-issued or to-be-announced basis may increase its overall
investment exposure and involves a risk of loss if the value of the securities
declines prior to the settlement date or if the broker-dealer selling the
securities fails to deliver after the value of the securities has risen.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the Fund intends to enter into repurchase agreements only with
its Custodian, banks having assets in excess of $10 billion and the largest and,
in the Board of Trustees' judgment, most creditworthy primary U.S. Government
securities dealers. The Fund will enter into repurchase agreements which are
collateralized by U.S. Government obligations or other liquid high-grade debt
obligations. Collateral for repurchase agreements is held in safekeeping in the
customer-only account of the Fund's Custodian at the Federal Reserve Bank. At
the time the Fund enters into a repurchase agreement, the value of the
collateral, including accrued interest, will equal or exceed the value of the
repurchase agreement and, in the case of a repurchase agreement exceeding one
day, the seller agrees to
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<PAGE>
maintain sufficient collateral so that the value of the underlying collateral,
including accrued interest, will at all times equal or exceed the value of the
repurchase agreement. The Fund will not enter into a repurchase agreement not
terminable within seven days if, as a result thereof, more than 15% of the value
of the net assets of the Fund would be invested in such securities and other
illiquid securities.
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
if outstanding borrowings exceed 5% of the value of its total assets. These
policies do not preclude the Fund from entering into reverse repurchase
transactions (see below), provided that the Fund has asset coverage of 300% of
all its reverse repurchase commitments pursuant to such transactions and all
other outstanding borrowings of the Fund. Borrowings of the Fund, including its
current obligations under reverse repurchase agreements, will not exceed
one-third of the current market value of the Fund's total assets (less all its
liabilities other than obligations under reverse repurchase agreements and other
borrowings).
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.
REVERSE REPURCHASE TRANSACTIONS. The Fund may enter into reverse
repurchase transactions. A reverse repurchase transaction involves the sale of a
money market instrument held by the Fund coupled with an agreement by the Fund
to repurchase the instrument at a stated price, date and interest payment. The
Fund will use the proceeds of a reverse repurchase transaction to purchase other
money market instruments which either mature at a date simultaneous with or
prior to the expiration of the reverse repurchase agreement or which are held
under an agreement to resell maturing as of that time.
The Fund will enter into a reverse repurchase transaction
only when the interest income to be earned from the investment of the proceeds
of the transaction is greater than the interest expense of the transaction.
Under the Investment Company Act of
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<PAGE>
1940, reverse repurchase transactions may be considered to be borrowings by the
seller. The Fund may not enter into a reverse repurchase transaction if, as a
result, its current obligations under such agreements and all of its other
outstanding borrowings would exceed one-third of the current market value of the
Fund's total assets (less all its liabilities other than obligations under such
agreements and other borrowings). The Fund may enter into reverse repurchase
transactions with banks or broker-dealers. Entry into such transactions requires
the creation and maintenance of a segregated account with the Fund's Custodian
consisting of cash and/or liquid high-grade debt obligations.
The Fund may also enter into reverse repurchase transactions in order
to hedge against a possible decline in the value of the foreign currency in
which a debt security is denominated. In these transactions, the Fund sells a
debt security denominated in a foreign currency for delivery in the current
month and simultaneously contracts to repurchase the same security on a
specified future date. The foreign currency cash proceeds from the sale of the
debt security are then converted into U.S. dollars. Thus, as a result of the
transaction, the Fund continues to be subject to fluctuations in the value of
the security, but not to fluctuations in the value of the currency in which the
security is denominated. Because these reverse repurchase transactions are
entered into to hedge foreign currency risk and not for leverage purposes, they
will not be treated as borrowing for purposes of the Fund's investment
restriction concerning borrowing.
LENDING PORTFOLIO SECURITIES. The Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes the Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that the Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or liquid high-grade debt obligations, with the Fund's Custodian in
an amount at least equal to the market value of the loaned securities. The Fund
will limit the amount of its loans of portfolio securities to no more than 25%
of its net assets. This lending policy may not be changed by the Fund without
the affirmative vote of a majority of its outstanding shares.
PORTFOLIO TURNOVER. The Fund does not intend to use short-term trading
as a primary means of achieving its investment objective. However, the Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
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<PAGE>
appropriate by the Adviser. The portfolio turnover of the Fund may be greater
than that of many other mutual funds. High turnover involves correspondingly
greater commission expenses and transaction costs and increases the possibility
that the Fund would not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code. The Fund will not qualify as a
regulated investment company if it derives 30% or more of its gross income from
gains (without offset for losses) from the sale or other disposition of
securities held for less than three months. High turnover may result in the Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to its
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes. See "Taxes."
HOW TO PURCHASE SHARES
Your initial investment in the Fund ordinarily must be at least $1,000
($250 for tax-deferred retirement plans). You may purchase additional shares
through the Open Account Program described below. You may open an account and
make an initial investment through securities dealers having a sales agreement
with the Trust's principal underwriter, Midwest Group Financial Services, Inc.
(the "Manager"). You may also make a direct initial investment by sending a
check and a completed account application form to MGF Service Corp., P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the "Global
Bond Fund." An account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not ordinarily issued, but you
may receive a certificate without charge by sending a written request to MGF
Service Corp. Certificates for fractional shares will not be issued. If a
certificate has been issued to you, you will not be permitted to exchange shares
by telephone or to use the automatic withdrawal plan as to those shares. The
Trust and the Manager 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 exchanges) made available to
investors.
Should an order to purchase shares be canceled because your check does
not clear, you will be responsible for any resulting
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<PAGE>
losses or fees incurred by the Trust or MGF Service Corp. in the transaction.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services
described in this section to MGF Service Corp. at the address or numbers listed
below.
After an initial investment, all investors are considered participants
in the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Fund over a period of years and permits the automatic
reinvestment of dividends and distributions of the Fund in additional shares
without a sales load.
Under the Open Account Program, you may purchase and add shares to your
account at any time either through your securities dealer or by sending a check
to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. The check
should be made payable to the "Global Bond Fund."
Under the Open Account Program, you may also purchase shares of the
Fund by bank wire. Please telephone MGF Service Corp. (Nationwide call toll-free
800-543-0407; in Cincinnati call 629- 2050) for instructions. 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.
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. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for selling
shares of the Fund to a current shareholder, such broker-dealer will receive the
concessions described above with respect to additional investments by the
shareholder.
Sales Load Alternatives
The Fund offers two classes of shares which may be purchased at the
election of the purchaser. The two classes of shares each represent interests in
the same portfolio of investments of the Fund, have the same rights and are
identical in all material respects except that (i) Class C shares bear the
expenses of higher distribution fees; (ii) certain other class specific expenses
will be borne solely by the class to which such expenses
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<PAGE>
are attributable, including transfer agent fees attributable to a specific class
of shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expenses of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and expenses relating to a specific class of shares;
and (iii) each class has exclusive voting rights with respect to matters
relating to its own distribution arrangements. The net income attributable to
Class C shares and the dividends payable on Class C shares will be reduced by
the amount of the incremental expenses associated with the distribution fee. See
"Distribution Plans."
The Fund's alternative sales arrangements permit investors to choose
the method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold his shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur a front-end sales load
and be subject to lower ongoing charges, as discussed below, or to have all of
the initial purchase price invested in the Fund with the investment thereafter
being subject to higher ongoing charges. A salesperson or any other person
entitled to receive any portion of a distribution fee may receive different
compensation for selling Class A or Class C shares.
As an illustration, investors who qualify for reduced sales loads as
described below, might elect the Class A sales load alternative because similar
sales load reductions are not available for purchases under the Class C sales
load alternative. Moreover, shares acquired under the Class A sales load
alternative would be subject to lower ongoing distribution fees as described
below. Investors not qualifying for reduced initial sales loads who expect to
maintain their investment for an extended period of time might also elect the
Class A sales load alternative because over time the accumulated continuing
distribution fees on Class C shares may exceed the difference in initial sales
loads between Class A and Class C shares. Again, however, such investors must
weigh this consideration against the fact that less of their funds will be
invested initially under the Class A sales load alternative. Furthermore, the
higher ongoing distribution fees will be offset to the extent any return is
realized on the additional funds initially invested under the Class C sales load
alternative.
Some investors might determine that it would be more advantageous to
utilize the Class C sales load alternative to
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<PAGE>
have more of their funds invested initially, although remaining subject to
higher ongoing distribution fees and, for a one-year period, being subject to a
contingent deferred sales load. For example, based on estimated fees and
expenses, an investor subject to the maximum 4% initial sales load on Class A
shares who elects to reinvest dividends in additional shares would have to hold
the investment in Class A shares approximately 5 years before the accumulated
ongoing distribution fees on the alternative Class C shares would exceed the
initial sales load plus the accumulated ongoing distribution fees on Class A
shares. In this example and assuming the investment was maintained for more than
5 years, the investor might consider purchasing Class A shares. This example
does not take into account the time value of money which reduces the impact of
the higher ongoing Class C distribution fees, fluctuations in net asset value or
the effect of different performance assumptions.
In addition to the compensation otherwise paid to securities dealers,
the Manager may from time to time pay from its own resources additional cash
bonuses or other incentives to selected dealers in connection with the sale of
shares of the Fund. On some occasions, such bonuses or incentives may be
conditioned upon the sale of a specified minimum dollar amount of the shares of
the Fund and/or other funds in the Midwest Group during a specific period of
time. Such bonuses or incentives may include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising, sales campaigns and other dealer-sponsored
programs or events.
Class A Shares
Class A shares of the Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Manager by 5:00 p.m., Eastern time, that day
are confirmed at the public offering price determined as of the close of the
regular session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Manager by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by MGF
Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's public
offering price. Direct investments received by MGF Service Corp. after 4:00
p.m., Eastern time, and orders received from dealers after 5:00 p.m., Eastern
time, are confirmed at the public offering price next determined on the
following business day.
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<PAGE>
The public offering price of Class A shares is the next determined
net asset value per share plus a sales load as shown in the following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but
a contingent deferred sales load of .75% may apply with respect to
Class A shares if a commission was paid by the Manager to a
participating unaffiliated dealer and the shares are redeemed within
twelve months from the date of purchase.
Under certain circumstances, the Manager may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Fund may be
deemed to be underwriters under the Securities Act of 1933. The Manager retains
the entire sales load on all direct initial investments in the Fund and on all
investments in accounts with no designated dealer of record.
For initial purchases of Class A shares of $1,000,000 or more made
after October 1, 1995 and subsequent purchases further increasing the size of
the account, a dealer's commission of .75% of the purchase amount may be paid by
the Manager to participating unaffiliated dealers through whom such purchases
are effected. In determining a dealer's eligibility for such commission,
purchases of Class A shares of the Fund may be aggregated with concurrent
purchases of Class A shares of other Midwest Group funds. Dealers should contact
the Manager concerning the applicability and calculation of the dealer's
commission in the case of combined purchases. An exchange from other Midwest
Group funds will not qualify for payment of the dealer's commission, unless such
exchange is from a Midwest Group fund with assets as to which a dealer's
commission or similar payment has not been previously paid. Redemptions of Class
A shares may result in the imposition of a contingent deferred sales load if the
dealer's commission described in this paragraph was paid in connection with the
purchase of such shares. See "Contingent Deferred Sales Charge for Certain
Purchases of Class A Shares" below.
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<PAGE>
REDUCED SALES LOAD. A "purchaser" (defined below) may use the
Right of Accumulation to combine the cost or current net asset value
(whichever is higher) of his existing Class A shares of the load funds
distributed by the Manager with the amount of his current purchases in order to
take advantage of the reduced sales loads set forth in the table above.
Purchases made in any load fund distributed by the Manager pursuant to a Letter
of Intent may also be eligible for the reduced sales loads. The minimum initial
investment under a Letter of Intent is $10,000. The load funds currently
distributed by the Manager are listed in the Exchange Privilege section of this
Prospectus. Shareholders should contact MGF Service Corp. for information about
the Right of Accumulation and Letter of Intent.
PURCHASES AT NET ASSET VALUE. You may purchase Class A shares of the
Fund at net asset value when the payment for your investment represents the
proceeds from the redemption of shares of any other mutual fund which has a
front-end sales load and is not distributed by the Manager. Your investment will
qualify for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within one year of the
purchase of such shares and no more than sixty days prior to your purchase of
Class A shares of the Fund. To make a purchase at net asset value pursuant to
this provision, you must submit photocopies of the confirmations (or similar
evidence) showing the purchase and redemption of shares of the other fund. Your
payment may be made with the redemption check representing the proceeds of the
shares redeemed, endorsed to the order of the "Global Bond Fund." The redemption
of shares of the other fund is, for federal income tax purposes, a sale on which
you may realize a gain or loss. These provisions may be modified or terminated
at any time. Contact your securities dealer or the Trust for further
information.
Banks, bank trust departments and savings and loan associations, in
their fiduciary capacity or for their own accounts, may also purchase Class A
shares of the Fund at net asset value. To the extent permitted by regulatory
authorities, a bank trust department may charge fees to clients for whose
account it purchases shares at net asset value. Federal and state credit unions
may also purchase Class A shares at net asset value.
In addition, Class A shares of the Fund may be purchased at net asset
value by broker-dealers who have a sales agreement with the Manager, and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
Class A shares of the Fund at net asset value if their investment adviser or
financial planner has made
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<PAGE>
arrangements to permit them to do so with the Trust and the Manager.
The investment adviser or financial planner must notify MGF Service
Corp. that an investment qualifies as a purchase at net asset value.
Trustees, directors, officers and employees of the Trust, the Manager,
the Adviser or MGF Service Corp., including members of the immediate family of
such individuals and employee benefit plans established by such entities, may
also purchase Class A shares of the Fund at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES.
A contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Fund (or shares into which such Class A shares were exchanged)
purchased at net asset value in amounts totaling $1 million or more, if the
dealer's commission described above was paid by the Manager and the shares are
redeemed within twelve months from the date of purchase. The contingent deferred
sales load will be paid to the Manager and will be equal to .75% of the lesser
of (1) the net asset value at the time of purchase of the Class A shares being
redeemed or (2) the net asset value of such Class A shares at the time of
redemption. In determining whether the contingent deferred sales load is
payable, it is assumed that shares not subject to the contingent deferred sales
load are the first redeemed followed by other shares held for the longest period
of time. The contingent deferred sales load will not be imposed upon shares
representing reinvested dividends or capital gains distributions, or upon
amounts representing share appreciation. If a purchase of Class A shares is
subject to the contingent deferred sales load, the investor will be so notified
on the confirmation for such purchase.
Redemptions of such Class A shares of the Fund held for at least 12
months will not be subject to the contingent deferred sales load and an exchange
of such Class A shares into another Midwest Group fund is not treated as a
redemption and will not trigger the imposition of the contingent deferred sales
load at the time of such exchange. A fund will "tack" the period for which such
Class A shares being exchanged were held onto the holding period of the acquired
shares for purposes of determining if a contingent deferred sales load is
applicable in the event that the acquired shares are redeemed following the
exchange; however, the period of time that the redemption proceeds of such Class
A shares are held in a money market fund will not count toward the holding
period for determining whether a contingent deferred sales load is applicable.
See "Exchange Privilege."
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The contingent deferred sales load is currently waived for any
partial or complete redemption following death or disability (as defined in
the Internal Revenue Code of 1986, as amended) of a shareholder (including one
who owns the shares with his or her spouse as a joint tenant with rights of
survivorship) from an account in which the deceased or disabled is named. The
Manager may require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the applicable
sales load and for purposes of the Letter of Intent and Right of Accumulation
privileges, a purchaser includes an individual, his spouse and their children
under the age of 21, purchasing shares for his or their own account; or a
trustee or other fiduciary purchasing shares for a single fiduciary account
although more than one beneficiary is involved; or employees of a common
employer, provided that economies of scale are realized through remittances from
a single source and quarterly confirmation of such purchases; or an organized
group, provided that the purchases are made through a central administration, or
a single dealer, or by other means which result in economy of sales effort or
expense. Contact MGF Service Corp. for additional information concerning
purchases at net asset value or at reduced sales loads.
Class C Shares
Class C 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.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Manager by 5:00 p.m., Eastern time, that day
are confirmed at the net asset value determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Manager by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by MGF
Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's net asset
value. Direct investments received by MGF Service Corp. after 4:00 p.m., Eastern
time, and orders received from dealers after 5:00 p.m., Eastern time, are
confirmed at the net asset value next determined on the following business day.
A contingent deferred sales load is imposed on Class C shares if an
investor redeems an amount which causes the current value of the investor's
account to fall below the total dollar amount of purchase payments subject to
the deferred sales load, except that no such charge is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or to the extent the amount redeemed is
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derived from increases in the value of the account above the amount of purchase
payments subject to the deferred sales load.
Whether a contingent deferred sales load is imposed will depend on the
amount of time since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the contingent deferred sales load
according to the following schedule:
Year Since Purchase Contingent Deferred
Payment was Made Sales Load
First Year 1%
Thereafter None
In determining whether a contingent deferred sales load is payable, it
is assumed that the purchase payment from which the redemption is made is the
earliest purchase payment (from which a redemption or exchange has not already
been effected). If the earliest purchase from which a redemption has not yet
been effected was made within one year before the redemption, then a deferred
sales load at the rate of 1% will be imposed.
The following example will illustrate the operation of the contingent
deferred sales load. Assume that an individual opens an account and purchases
1,000 shares at $10 per share and that six months later the net asset value per
share is $12 and, during such time, the investor has acquired 50 additional
shares through reinvestment of distributions. If at such time the investor
should redeem 450 shares (proceeds of $5,400), 50 shares will not be subject to
the load because of dividend reinvestment. With respect to the remaining 400
shares, the load is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $4,000 of the
$5,400 redemption proceeds will be charged the load. At the rate of 1%, the
contingent deferred sales load would be $40. In determining whether an amount is
available for redemption without incurring a deferred sales load, the purchase
payments made for all Class C shares in the shareholder's account are
aggregated, and the current value of all such shares is aggregated.
All sales loads imposed on redemptions are paid to the Manager. The
Manager intends to pay a commission of 1% of the purchase amount to
participating brokers at the time the investor purchases Class C shares.
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her
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spouse as a joint tenant with rights of survivorship) from an account in which
the deceased or disabled is named. The Manager may require documentation prior
to waiver of the charge, including death certificates, physicians' certificates,
etc.
SHAREHOLDER SERVICES
Contact MGF Service Corp. (Nationwide call toll-free 800- 543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
Automatic Withdrawal Plan
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional Class A shares of the Fund
while the plan is in effect are generally undesirable because a sales load is
incurred whenever purchases are made.
Tax-Deferred Retirement Plans
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Fund.
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Automatic Investment Plan
You may make automatic monthly investments in the Fund from your bank,
savings and loan or other depository institution account. The minimum initial
and subsequent investments must be $50 under the plan. MGF Service Corp. pays
the costs associated with these transfers, but reserves the right, upon thirty
days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Fund.
Reinvestment Privilege
If you have redeemed shares of the Fund, you may reinvest all or part
of the proceeds without any additional sales load. This reinvestment must occur
within ninety days of the redemption and the privilege may only be exercised
once per year.
HOW TO REDEEM SHARES
You may redeem shares of the Fund on each day that the Trust is open
for business 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 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.
You may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
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.
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<PAGE>
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.
If a certificate for the shares was issued, it must be delivered to MGF
Service Corp., or the dealer in the case of a wire redemption, duly endorsed or
accompanied by a duly endorsed stock power, with the signature guaranteed by any
of the eligible guarantor institutions outlined above.
A contingent deferred sales load may apply to a redemption of Class C
shares or to a redemption of certain Class A shares purchased at net asset
value. See "How to Purchase Shares."
Shares are redeemed at their net asset value per share next determined
after receipt by MGF Service Corp. of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. 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.
The Trust and MGF Service Corp. will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
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.
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 $1,000 (based on actual amounts invested
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<PAGE>
including any sales load paid, unaffected by market fluctuations), or $250 in
the case of tax-deferred retirement plans, 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.
Class A shares of the Fund which are not subject to a contingent
deferred sales load may be exchanged for Class A shares of any other fund and
for shares of any other fund which offers only one class of shares (provided
such shares are not subject to a contingent deferred sales load). 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.
Class C shares of the Fund, as well as Class A shares of the Fund
subject to a contingent deferred sales load, may be exchanged, on the basis of
relative net asset value per share, for shares of any other fund which imposes a
contingent deferred sales load and for shares of any fund which is a money
market fund. A fund will "tack" the period for which the shares being exchanged
were held onto the holding period of the acquired shares for purposes of
determining if a contingent deferred sales load is applicable in the event that
the acquired shares are redeemed following the exchange. The period of time that
shares are held in a money market fund will not count toward the holding period
for determining whether a contingent deferred sales load is applicable.
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.
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<PAGE>
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
*Tax-Free Intermediate Term Fund Midwest Trust
*Ohio Insured Tax-Free Fund Short Term Government Income Fund
Institutional Government Income Fund
*Intermediate Term Government Income
Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to MGF Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by visiting the
Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. An
exchange will be effected at the next determined net asset value (or offering
price, if sales load is applicable) after receipt of a request by MGF Service
Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact MGF Service Corp. to obtain a
current prospectus for any of the other funds in the Midwest Group and more
information about exchanges among the Midwest Group of Funds.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to distribute substantially all of its net investment
income and 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.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
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<PAGE>
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option 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.
An investor who has received in cash any dividend or capital gains
distribution from the Fund may return the distribution within thirty days of the
distribution date to MGF Service Corp. for reinvestment at the net asset value
next determined after its return. The investor or his dealer must notify MGF
Service Corp. that a distribution is being reinvested pursuant to this
provision.
TAXES
The Fund has qualified in all prior years and intends to continue 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 intends to distribute substantially all of its net investment
income and any net realized capital gains to its shareholders. Distributions of
net investment income as well as from net realized short-term capital gains, if
any, are 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 resulting from the sale of foreign currencies and foreign
obligations, to the extent of foreign exchange gains, are taxed as ordinary
income or loss. If these transactions result in reducing the Fund's net income,
a portion of the income may be classified as a return of capital (which will
lower your tax basis). If the Fund pays nonrefundable taxes to foreign
governments during the year, the
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taxes will reduce the Fund's net investment income but still may be included in
your taxable income. However, you may be able to claim an offsetting tax credit
or itemized deduction on your return for your portion of foreign taxes paid by
the Fund. 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.
Redemptions and exchanges of shares of the Fund are taxable events on which a
shareholder may realize a gain or loss.
Under applicable tax law, the Fund may be required to limit its gains
from hedging in foreign currency forwards, futures and options. Although it is
anticipated the Fund will comply with such limits, the Fund's extensive use of
these hedging techniques involves greater risk of unfavorable tax consequences
than funds not engaging in such techniques. Hedging may also result in the
application of the mark-to-market and straddle provisions of the Internal
Revenue Code. These provisions could result in an increase (or decrease) in the
amount of taxable dividends paid by the Fund as well as affect whether dividends
paid by the Fund are classified as capital gains or ordinary 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. In addition to federal taxes, shareholders of the Fund may be subject to
state and local taxes on distributions. Shareholders should consult their tax
advisors about the tax effect of distributions and withdrawals from the Fund and
the use of the Automatic Withdrawal Plan and the Exchange Privilege. The tax
consequences described in this section apply whether distributions are taken in
cash or reinvested in additional shares.
OPERATION OF THE FUND
The Fund is a non-diversified series of Midwest Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 7, 1980. 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 45202 (the "Manager"), to provide general investment
supervisory services to the Fund and to manage the Fund's business affairs. The
Manager was organized in 1974 and serves as investment adviser to four other
series of the Trust, six series of Midwest Group Tax Free Trust and four series
of Midwest Strategic Trust. The Fund pays the Manager a fee equal to the annual
rate of .7% of the average value of its
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daily net assets up to $100 million and .6% of such assets in excess of $100
million.
Rogge Global Partners plc (the "Adviser"), 5-6 St. Andrew's Hill,
London, England, has been retained by the Manager to manage the Fund's
investments. The Adviser was organized in 1984 and specializes in global
fixed-income management. The Adviser is a wholly-owned subsidiary of United
Asset Management Corporation, a New York Stock Exchange listed company
principally engaged, through affiliated firms in the United States and abroad,
in providing institutional investment management services and acquiring
institutional investment firms. The Manager (not the Fund) pays the Adviser a
fee equal to the annual rate of .35% of the average value of the Fund's daily
net assets up to $100 million and .3% of such assets in excess of $100 million.
Decisions regarding the investment of the Fund's portfolio
are made by the Adviser's Global Strategy Group, which is made up of the
Adviser's directors of portfolio management: Olaf Rogge, John Graham and Richard
Bell. Mr. Rogge is the founder of the Adviser and has been managing global
investments for approximately twenty-three years.
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 Plans"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Fund, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Fund may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati,
Ohio 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.
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<PAGE>
In addition, MGF Service Corp. has been retained by the Manager to
assist the Manager 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 Manager
(not the Fund) pays MGF Service Corp. a fee for these administrative services
equal to the annual rate of .1% of the average value of the Fund's daily net
assets.
The Manager 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 Manager, is President and a Trustee of
the Trust. John F. Splain, Secretary and General Counsel of the Manager, is
Secretary of the Trust.
The Manager and MGF Service Corp. are each a wholly-owned
subsidiary of Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Pursuant to an agreement dated December 10, 1996
between the shareholders of Leshner Financial, Inc. and Countrywide Credit
Industries, Inc. ("CCI"), CCI has agreed to acquire all of the outstanding
common stock of Leshner Financial, Inc. in exchange for newly issued common
stock of CCI. Following such acquisition, which is expected to be consummated on
or about February 28, 1997, Leshner Financial, Inc. will be wholly-owned
subsidiary of CCI. CCI is a New York Stock Exchange listed company principally
engaged in residential mortgage lending.
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, the Manager or
the Adviser.
Shares of the Fund have equal voting rights and liquidation rights. The
Fund shall vote separately on matters submitted to a vote of the shareholders
except in matters where a vote of all series of the Trust in the aggregate is
required by the Investment Company Act of 1940 or otherwise. Each class of
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shares of the Fund shall vote separately on matters relating to its plan of
distribution pursuant to Rule 12b-1 (see "Distribution Plans"). 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 PLANS
CLASS A SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Fund has adopted a plan of distribution (the "Class A Plan") under
which Class A shares may directly incur or reimburse the Manager for certain
distribution-related expenses, including payments to securities dealers and
others who are engaged in the sale of such shares and who may be advising
investors regarding the purchase, sale or retention of such 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 such shares.
The annual limitation for payment of expenses pursuant to the Class A
Plan is .35% of the Fund's average daily net assets allocable to Class A shares.
Unreimbursed expenditures will not be carried over from year to year. In the
event the Class A Plan is terminated by the Fund in accordance with its terms,
the Fund will not be required to make any payments for expenses incurred by the
Manager after the date the Class A Plan terminates.
CLASS C SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Fund has adopted a plan of distribution (the "Class C Plan") which
provides for two categories of payments. First, the Class C Plan provides for
the payment to the Manager of an account maintenance fee, in an amount equal to
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an annual rate of .25% of the Fund's average daily net assets allocable to Class
C shares, which may be paid to other dealers based on the average value of such
shares owned by clients of such dealers. In addition, the Class C shares may
directly incur or reimburse the Manager in an amount not to exceed .75% per
annum of the Fund's average daily net assets allocable to Class C shares for
expenses incurred in the distribution and promotion of the Fund's Class C
shares, including payments to securities dealers and others who are engaged in
the sale of such shares and who may be advising investors regarding the
purchase, sale or retention of such 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 such shares.
Unreimbursed expenditures will not be carried over from year to year.
In the event the Class C 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 Manager after the date the Class C Plan terminates. The Manager may make
payments to dealers and other persons in an amount up to .75% per annum of the
average value of Class C shares owned by their clients, in addition to the .25%
account maintenance fee described above.
GENERAL. Pursuant to the Plans, the Fund may make payments to dealers
and other persons, including the Manager and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Fund shares. For the
fiscal year ended September 30, 1996, Class A shares and Class C shares of the
Fund paid $497 and $22,634, respectively, to the Manager to reimburse it for
payments made to dealers and other persons who may be advising shareholders in
this regard.
Pursuant to the Plans, 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
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services. However, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Fund or its shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Fund may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Fund, no preference will be shown for
such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules 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 AND PUBLIC OFFERING PRICE
On each day that the Trust is open for business, the share price (net
asset value) of Class C shares and the public offering price (net asset value
plus applicable sales load) of Class A 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. The Trust is open for business on each day
the New York Stock Exchange is open for business. Obligations held by the Fund
may be primarily listed on foreign exchanges or traded in foreign markets which
are open on days (such as Saturdays and U.S. holidays) when the New York Stock
Exchange is not open for business. As a result, the net asset value per share of
the Fund may be significantly affected by trading on days when the Trust is not
open for business. The net asset value per share of the Fund is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by the
total number of shares outstanding of the Fund, rounded to the nearest cent.
The Fund's portfolio securities 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. Foreign securities are
valued on the basis of quotations from the primary market in which they are
traded and are translated from the local currency into U.S. dollars using
currency exchange rates. Securities (and other assets) for which market
quotations are not readily available are valued at their
- 35 -
<PAGE>
fair value as determined in good faith in accordance with consistently applied
procedures established by and under the general supervision of the Board of
Trustees. The net asset value per share of the Fund will fluctuate with the
value of the securities it holds.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its "average annual total
return." The Fund may also advertise "yield." Both yield and average annual
total return figures are based on historical earnings and are not intended to
indicate future performance. Total return and yield are computed separately for
Class A and Class C shares. The yield of Class A shares is expected to be higher
than the yield of Class C shares due to the higher distribution fees imposed on
Class C shares.
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 and, for
Class A shares, the deduction of the current maximum sales load from the initial
investment. 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." These
nonstandardized returns do not include the effect of the applicable sales load
which, if included, would reduce total return. A nonstandardized 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.
- 36 -
<PAGE>
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 such as the Salomon Brothers World Government Bond Index. In
connection with a ranking, the Fund may provide additional information, such as
the particular category of funds to which the ranking relates, the number of
funds in the category, the criteria upon which the ranking is based, and the
effect of fee waivers and/or expense reimbursements, if any. The Fund may also
present its performance and other investment characteristics, such as volatility
or a temporary defense posture, in light of the Manager's view of current or
past market conditions or historical trends.
Further information about the Fund's performance is contained in the
Trust's annual report which can be obtained by shareholders at no charge by
calling MGF Service Corp. (Nationwide call toll-free 800-543-0407; in Cincinnati
call 629- 2050) or by writing to the Trust at the address on the front of this
Prospectus.
<PAGE>
ACCOUNT APPLICATION
Please mail account application to:
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
GLOBAL BOND FUND
o A SHARES (12)
o C SHARES (13)
ACCOUNT NO._________________________
(For Fund Use Only)
FOR BROKER/DEALER USE ONLY
Firm Name:__________________________
Home Office Address:________________
Branch Address:_____________________
Rep Name & No.:_____________________
Rep Signature:______________________
Initial Investment of $__________________ ($1,000 minimum)
o Check or draft enclosed payable to the Fund.
o Bank Wire From: _________________________________________________________
o Exchange From: __________________________________________________________
(Fund Name) (Fund Account Number)
ACCOUNT NAME S.S. #/TAX L.D.#
__________________________________________________ _____________________
Name of Individual, Corporation, Organization, (In case of custodial
or Minor, etc. account please list
minor's S.S.#)
__________________________________________________ Citizenship:
Name of Joint Tenant, Partner, Custodian o U.S.
o Other
ADDRESS PHONE
__________________________________________________ ( )______
Street or P.O. Box Business Phone
__________________________________________________ ( )______
City State Zip Home Phone
Check Appropriate Box: o Individual o Joint Tenant (Right of survivorship
presumed) o Partnership o Corporation o Trust o Custodial o Non-Profit o Other
Occupation and Employer Name/Address__________________________________________
Are you an associated person of an NASD member? o Yes o No
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that
the Taxpayer Identification Number listed above is my correct number. The
Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding. Check box if appropriate:
o I am exempt from backup withholding under the provisions of section
3406(a)(1)(c) of the Internal Revenue Code; or I am not subject to backup
withholding because I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the Internal Revenue Service has notified me that I am no longer subject to
backup withholding.
o I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me and I have mailed or delivered an application to
receive a Taxpayer Identification Number to the Internal Revenue Service
Center or Social Security Administration Office. I understand that if I do not
provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
<PAGE>
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
o Share Option -- Income distributions and capital gains distributions
automatically reinvested in additional shares.
o Income Option -- Income distributions and short term capital gains
distributions paid in cash, long term capital gains distributions reinvested
in additional shares.
o Cash Option --Income distributions and capital gains distributions paid in
cash.
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
RIGHT OF ACCUMULATION: I apply for Right of Accumulation subject to the
Agent's confirmation of the following holdings of eligible load funds of the
Midwest Group of Funds.
ACCOUNT NUMBER/NAME ACCOUNT NUMBER/NAME
_____________________________________ _____________________________________
_____________________________________ _____________________________________
LETTER OF INTENT: (Complete the Right of Accumulation section if related
accounts are being applied to your Letter of Intent.)
o l agree to the Letter of Intent in the current Prospectus of Midwest Trust.
Although I am not obligated to purchase, and the Trust is not obligated to
sell, I intend to invest over a 13 month period beginning ___________________
19 _______ (Purchase Date of not more than 90 days prior to this Letter) an
aggregate amount in the load funds of the Midwest Group of Funds at least
equal to (check appropriate box):
o $100,000 o $250,000 o $500,000 o $1,000,000
<PAGE>
SIGNATURES
By signature below each investor certifies that he has received a copy of the
Fund's current Prospectus, that he is of legal age, and that he has full
authority and legal capacity for himself or the organization named below, to
make this investment and to use the options selected above. The investor
appoints MGF Service Corp. as his agent to enter orders for shares whether by
direct purchase or exchange, to receive dividends and distributions for
automatic reinvestment in additional shares of the Fund for credit to the
investor's account and to surrender for redemption shares held in the
investor's account in accordance with any of the procedures elected above or
for payment of service charges incurred by the investor. The investor further
agrees that MGF Service Corp. can cease to act as such agent upon ten days'
notice in writing to the investor at the address contained in this
Application. The investor hereby ratifies any instructions given pursuant to
this Application and for himself and his successors and assigns does hereby
release MGF Service Corp., Midwest 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 provided
that such entities have exercised due care to determine that the instructions
are genuine.
_____________________________________ _____________________________________
Signature of Individual Owner, Signature of Joint Owner, if Any
Corporate Officer, Trustee, etc.
_____________________________________ _____________________________________
Title of Corporate Officer, Date
Trustee, etc.
NOTE: CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS MUST COMPLETE THE
RESOLUTION FORM ON THE REVERSE SIDE.
UNLESS OTHERWISE SPECIFIED, EACH JOINT OWNER SHALL HAVE FULL AUTHORITY TO ACT
ON BEHALF OF THE ACCOUNT.
AUTOMATIC INVESTMENT PLAN (Complete for Investments into the Fund)
The Automatic Investment Plan is available for all established accounts of
Midwest Trust. There is no charge for this service, and it offers the
convenience of automatic investing on a regular basis. The minimum investment
is $50.00 per month. For an account that is opened by using this Plan, the
minimum initial and subsequent investments must be $50.00. Though a continuous
program of 12 monthly investments is recommended, the Plan may be discontinued
by the shareholder at any time.
<PAGE>
Please invest $_________________ ABA Routing Number_________________________
per month in the Fund.
FI Account Number__________________________
o Checking Account o Savings Account
_________________________________
Name of Financial Institution (FI) Please make my automatic investment on:
o the last business day of each month
_________________________________ o the 15th day of each month
City State o both the 15th and last business day
X________________________________ X________________________________
(Signature of Depositor EXACTLY (Signature of Joint Tenant -
as it appears on FI Records) if any)
(Joint Signatures are required when bank account is in joint names. Please
sign exactly as signature appears on your FI's records.)
Please attach a voided check for the Automatic Investment Plan.
INDEMNIFICATION TO DEPOSITOR'S BANK
In consideration of your participation in a plan which MGF Service Corp.
("MGF") has put into effect, by which amounts, determined by your depositor,
payable to the Fund, for purchase of shares of the Fund, are collected by MGF,
MGF hereby agrees:
MGF will indemnify and hold you harmless from any liability to any person or
persons whatsoever arising out of the payment by you of any amount drawn by
the Fund to its own order on the account of your depositor or from any
liability to any person whatsoever arising out of the dishonor by you whether
with or without cause or intentionally or inadvertently, of any such amount.
MGF will defend, at its own cost and expense, any action which might be
brought against you by any person or persons whatsoever because of your
actions taken pursuant to the foregoing request or in any manner arising by
reason of your participation in this arrangement. MGF will refund to you any
amount erroneously paid by you to the Fund if the claim for the amount of such
erroneous payment is made by you within six (6) months from the date of such
erroneous payment; your participation in this arrangement and that of the Fund
may be terminated by thirty (30) days written notice from either party to the
other.
<PAGE>
AUTOMATIC WITHDRAWAL PLAN (COMPLETE FOR WITHDRAWALS FROM THE FUND)
This is an authorization for you to withdraw $_________ from my mutual fund
account beginning the last business day of the month of ____________.
Please Indicate Withdrawal Schedule (Check One):
o MONTHLY -- Withdrawals will be made on the last business day of each month.
o QUARTERLY -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and
12/31.
o ANNUALLY -- Please make withdrawals on the last business day of the month
of:_____________.
Please Select Payment Method (Check One):
o EXCHANGE: Please exchange the withdrawal proceeds into another Midwest
account number: ____ ____ -- ____ ____ ____ ____ ____ ____ -- ____
o CHECK: Please mail a check for my withdrawal proceeds to the mailing
address on this account.
o ACH TRANSFER: Please send my withdrawal proceeds via ACH transfer to my
bank checking or savings account as indicated below. I understand that the
transfer will be completed in two to three business days and that there
is no charge.
o BANK WIRE: Please send my withdrawal proceeds via bank wire, to the account
indicated below. I understand that the wire will be completed in one business
day and that there is an $8.00 fee.
PLEASE ATTACH A VOIDED CHECK FOR ACH OR BANK WIRE
_____________________________________________________________________________
Bank Name Bank Address
_____________________________________________________________________________
Bank ABA# Account # Account Name
o SEND TO SPECIAL PAYEE (OTHER THAN APPLICANT): Please mail a check for my
withdrawal proceeds to the mailing address below:
Name of payee_________________________________________________________________
Please send to:_______________________________________________________________
Street address City State Zip
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other
Organizations)
RESOLVED: That this corporation or organization become a shareholder of
Midwest Trust (the Trust) and that __________________________________ is (are)
hereby authorized to complete and execute the Application on behalf of the
corporation or organization and to take any action for it as may be necessary
or appropriate with respect to its shareholder account with the Trust, 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
applicable series of the Trust, to establish or acknowledge terms and
conditions governing the redemption of said shares and to otherwise implement
the privileges elected on the Application.
<PAGE>
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
_____________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws of_____________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on __________ at which a
quorum was present and acting throughout, and that the same are now in full
force and effect.
I further certify that the following is (are) duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the
foregoing resolutions.
NAME TITLE
_____________________________________ _____________________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
Witness my hand and seal of the corporation or organization
this____________________________day of____________________________, 19_______
_____________________________________ _____________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE>
MIDWEST TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
Nationwide: (Toll-Free) 800-543-8721
Cincinnati: 513-629-2000
OFFICERS
Robert H. Leshner, President
John F. Splain, Secretary
Mark J. Seger, Treasurer
INVESTMENT MANAGER AND UNDERWRITER
MIDWEST GROUP FINANCIAL SERVICES, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
INVESTMENT ADVISER
ROGGE GLOBAL PARTNERS plc
5-6 St. Andrew's Hill
London EC4V 5BY England
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
- 38 -
<PAGE>
TABLE OF CONTENTS PAGE
Expense Information . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . .
Investment Objective, Investment
Policies and Risk Considerations. . . . . . . .
How to Purchase Shares. . . . . . . . . . . . . .
Shareholder Services. . . . . . . . . . . . . . .
How to Redeem Shares. . . . . . . . . . . . . . .
Exchange Privilege. . . . . . . . . . . . . . . .
Dividends and Distributions . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . .
Operation of the Fund . . . . . . . . . . . . . .
Distribution Plans. . . . . . . . . . . . . . . .
Calculation of Share Price and Public
Offering Price. . . . . . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . .
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 39 -
<PAGE>
MIDWEST TRUST
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1997
Short Term Government Income Fund
Intermediate Term Government Income Fund
Institutional Government Income Fund
Adjustable Rate U.S. Government Securities Fund
Global Bond Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the applicable Fund of Midwest
Trust dated February 1, 1997. A copy of a Fund's Prospectus can be obtained by
writing the Trust at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202-4094,
or by calling the Trust nationwide toll-free 800-543-0407, in Cincinnati
629-2050.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Midwest Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
PAGE
THE TRUST ................................................................. 3
QUALITY RATINGS OF FIXED-INCOME OBLIGATIONS .................................4
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS .............................. 6
INVESTMENT LIMITATIONS......................................................19
TRUSTEES AND OFFICERS.......................................................28
THE INVESTMENT ADVISER AND UNDERWRITER......................................30
DISTRIBUTION PLANS . . . . . ...............................................34
SECURITIES TRANSACTIONS.....................................................37
PORTFOLIO TURNOVER..........................................................39
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE........................40
OTHER PURCHASE INFORMATION..................................................42
TAXES.......................................................................44
REDEMPTION IN KIND..........................................................46
HISTORICAL PERFORMANCE INFORMATION..........................................46
PRINCIPAL SECURITY HOLDERS..................................................52
CUSTODIAN...................................................................53
AUDITORS....................................................................53
MGF SERVICE CORP............................................................54
ANNUAL REPORT...............................................................55
<PAGE>
THE TRUST
Midwest Trust (the "Trust"), formerly Midwest Income Trust, was
organized as a Massachusetts business trust on December 7, 1980. The Trust
currently offers five series of shares to investors: the Short Term Government
Income Fund (formerly the Short Term Government Fund), the Intermediate Term
Government Income Fund (formerly the Intermediate Term Government Fund), the
Institutional Government Income Fund (formerly the Institutional Government
Fund), the Adjustable Rate U.S. Government Securities Fund and the Global Bond
Fund (referred to individually as a "Fund" and collectively as the "Funds").
Each Fund has its own investment objective(s) and policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that 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 any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Both Class A shares and Class C shares of the Intermediate Term
Government Income Fund, the Adjustable Rate U.S. Government Securities Fund and
the Global Bond Fund represent an interest in the same assets of such Fund, have
the same rights and are identical in all material respects except that (i) Class
C shares bear the expenses of higher distribution fees; (ii) certain other class
specific expenses will be borne solely by the class to which such expenses are
attributable, including transfer agent fees attributable to a specific class of
shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expenses of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or
- 3 -
<PAGE>
expenses incurred as a result of issues relating to a specific class of shares
and accounting fees and expenses relating to a specific class of shares; and
(iii) each class has exclusive voting rights with respect to matters relating to
its own distribution arrangements. The Board of Trustees may classify and
reclassify the shares of a Fund into additional classes of shares at a future
date.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
QUALITY RATINGS OF FIXED-INCOME OBLIGATIONS
CORPORATE BONDS.
Moody's Investors Service, Inc. provides the following descriptions of its
corporate bond ratings:
Aaa - "Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as 'gilt edge.' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues."
Aa - "Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are
- 4 -
<PAGE>
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities."
A - "Bonds which are rated A possess many favorable investment
attributes and are considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future."
Standard & Poor's Ratings Group provides the following descriptions of its
corporate bond ratings:
AAA - "Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong."
AA - "Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree."
A - "Debt rated A has strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories."
CORPORATE NOTES.
Moody's Investors Service, Inc. provides the following descriptions of its
corporate note ratings:
MIG-1 "Notes which are rated MIG-1 are judged to be of the best
quality. There is present strong protection by established
cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing."
MIG-2 "Notes which are rated MIG-2 are judged to be of high
quality. Margins of protection are ample although not so
large as in the preceding group."
MIG-3 "Notes which are rated MIG-3 are judged to be of favorable
quality. All security elements are accounted for but they are
lacking the undeniable strength of the preceding grades.
Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established."
- 5 -
<PAGE>
Standard & Poor's Ratings Group provides the following descriptions of its
corporate note ratings:
SP-1 "Debt rated SP-1 has very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+)
designation."
SP-2 "Debt rated SP-2 has satisfactory capacity to pay
principal and interest."
SP-3 "Debt rated SP-3 has speculative capacity to pay
principal and interest."
COMMERCIAL PAPER.
Description of Commercial Paper Ratings of Moody's Investors Service, Inc.:
Prime-1 "Superior capacity for repayment of short-term
promissory obligations."
Prime-2 "Strong capacity for repayment of short-term promissory
obligations."
Prime-3 "Acceptable capacity for repayment of short-term
promissory obligations."
Description of Commercial Paper Ratings of Standard & Poor's Ratings Group:
A-1 "This designation indicates that the degree of safety
regarding timely payment is very strong."
A-2 "Capacity for timely payment on issues with this
designation is strong. However, the relative degree of
safety is not as overwhelming as for issues designated
A-1."
A-3 "Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations."
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
A more detailed discussion of some of the terms used and investment
policies described in the Prospectuses (see "Investment Objectives and
Policies") appears below:
- 6 -
<PAGE>
WHEN-ISSUED SECURITIES AND SECURITIES PURCHASED ON A TO-BE- ANNOUNCED
BASIS. The Intermediate Term Government Income Fund, the Institutional
Government Income Fund, the Adjustable Rate U.S. Government Securities Fund and
the Global Bond Fund will only make commitments to purchase securities on a
when-issued or to-be-announced ("TBA") basis with the intention of actually
acquiring the securities. In addition, the Funds may purchase securities on a
when-issued or TBA basis only if delivery and payment for the securities takes
place within 120 days after the date of the transaction. In connection with
these investments, each Fund will direct the Custodian to place cash, U.S.
Government obligations or other liquid high-grade debt obligations in a
segregated account in an amount sufficient to make payment for the securities to
be purchased. When a segregated account is maintained because a Fund purchases
securities on a when-issued or TBA basis, the assets deposited in the segregated
account will be valued daily at market for the purpose of determining the
adequacy of the securities in the account. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of a Fund's commitments to purchase securities on a when-issued or TBA basis. To
the extent funds are in a segregated account, they will not be available for new
investment or to meet redemptions. Securities purchased on a when-issued or TBA
basis and the securities held in a Fund's portfolio are subject to changes in
market value based upon changes in the level of interest rates (which will
generally result in all of those securities changing in value in the same way,
i.e., all those securities experiencing appreciation when interest rates decline
and depreciation when interest rates rise). Therefore, if in order to achieve
higher returns, a Fund remains substantially fully invested at the same time
that it has purchased securities on a when-issued or TBA basis, there will be a
possibility that the market value of the Fund's assets will experience greater
fluctuation. The purchase of securities on a when-issued or TBA basis may
involve a risk of loss if the seller fails to deliver after the value of the
securities has risen.
When the time comes for a Fund to make payment for securities purchased
on a when-issued or TBA basis, the Fund will do so by using then available cash
flow, by sale of the securities held in the segregated account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued or TBA basis themselves (which
may have a market value greater or less than the Fund's payment obligation).
Although a Fund will only make commitments to purchase securities on a
when-issued or TBA basis with the intention of actually acquiring the
securities, the Funds may sell these securities before the settlement date if it
is deemed advisable by the Adviser as a matter of investment strategy.
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STRIPS. STRIPS are U.S. Treasury bills, notes, and bonds that have been
issued without interest coupons or stripped of their unmatured interest coupons,
interest coupons that have been stripped from such U.S. Treasury securities, and
receipts or certificates representing interests in such stripped U.S. Treasury
securities and coupons. A STRIPS security pays no interest in cash to its holder
during its life although interest is accrued for federal income tax purposes.
Its value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is generally
an amount significantly less than its face value. Investing in STRIPS may help
to preserve capital during periods of declining interest rates. For example, if
interest rates decline, GNMA Certificates owned by a Fund which were purchased
at greater than par are more likely to be prepaid, which would cause a loss of
principal. In anticipation of this, a Fund might purchase STRIPS, the value of
which would be expected to increase when interest rates decline.
STRIPS do not entitle the holder to any periodic payments of interest
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make periodic distributions of interest. On the
other hand, because there are no periodic interest payments to be reinvested
prior to maturity, STRIPS eliminate the reinvestment risk and lock in a rate of
return to maturity. Current federal tax law requires that a holder of a STRIPS
security accrue a portion of the discount at which the security was purchased as
income each year even though the Fund received no interest payment in cash on
the security during the year.
As a matter of current policy that may be changed without shareholder
approval, the Adjustable Rate U.S. Government Securities Fund will not purchase
STRIPS with a maturity date that is more than 10 years from the settlement of
the purchase.
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
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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.
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FHLMC Certificates. The term "FHLMC Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Federal Home Loan Mortgage Corporation. The
Federal Home Loan Mortgage Corporation is the leading seller of conventional
mortgage securities in the United States. FHLMC Certificates are not guaranteed
by the United States or by any Federal Home Loan Bank and do not constitute
debts or obligations of the United States or any Federal Home Loan Bank.
Mortgage loans underlying FHLMC Certificates will consist of fixed rate
mortgages with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first liens on one-family or
two-to-four family residential properties. Mortgage interest rates may be mixed
in a pool. The seller/ servicer of each mortgage retains a minimum three-eighths
of 1% servicing fee, and any remaining excess of mortgage rate over coupon rate
is kept by the Federal Home Loan Mortgage Corporation. The coupon rate of a
FHLMC Certificate does not by itself indicate the yield which will be earned on
the Certificate for the reasons discussed above in connection with GNMA
Certificates.
FNMA CERTIFICATES. The term "FNMA Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Federal National Mortgage Association.
The FNMA, despite having U.S. Government agency status, is also a
private, for-profit corporation organized to provide assistance in the housing
mortgage market. The only function of the FNMA is to provide a secondary market
for residential mortgages. Mortgage loans underlying FNMA Certificates reflect a
considerable diversity and are purchased from a variety of mortgage originators.
They are typically collateralized by conventional mortgages (not FHA-insured or
VA-guaranteed). FNMA Certificates are highly liquid and usually trade in the
secondary market at higher yields than GNMA Certificates. The coupon rate of a
FNMA Certificate does not by itself indicate the yield which will be earned on
the Certificate for the reasons discussed above in connection with GNMA
Certificates.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
a Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S.
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Government obligations by the Federal Reserve Bank of New York. Collateral for
repurchase agreements is held in safekeeping in the customer-only account of the
Funds' Custodian at the Federal Reserve Bank. A Fund will not enter into a
repurchase agreement not terminable within seven days if, as a result thereof,
more than 10% of the value of its net assets would be invested in such
securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, including
accrued interest, will equal or exceed the value of the repurchase agreement,
and in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed the value of the repurchase agreement. The
collateral securing the seller's obligation must be of a credit quality at least
equal to a Fund's investment criteria for portfolio securities and will be held
by the Custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from a Fund to the seller subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would consider
the securities purchased by a Fund subject to a repurchase agreement as being
owned by that Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the security. If a court characterized the transaction as a loan and a
Fund has not perfected a security interest in the security, that Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to
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repurchase the security, in which case a Fund may incur a loss if the proceeds
to that Fund of the sale of the security to a third party are less than the
repurchase price. However, if the market value of the securities subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund involved will direct the seller of the security to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
LOANS OF PORTFOLIO SECURITIES. The Institutional Government Income
Fund, the Adjustable Rate U.S. Government Securities Fund and the Global Bond
Fund may each 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 receives 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 Funds' 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.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Adjustable
Rate U.S. Government Securities Fund and the Global Bond Fund may invest consist
of certificates of deposit, bankers' acceptances and time deposits issued by
national banks and state banks, trust companies and mutual savings banks, or of
banks or institutions the accounts of which are insured by the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance Corporation.
Certificates of deposit are negotiable certificates evidencing the indebtedness
of a commercial bank to repay funds deposited with it for a definite period of
time (usually from fourteen days to one year) at a stated or variable
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interest rate. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft which has been drawn on it by a customer,
which instruments reflect the obligation both of the bank and of the drawer to
pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Investments in time deposits maturing
in more than seven days will be subject to each Fund's restrictions on illiquid
investments (see "Investment Limitations"). The Global Bond Fund may also invest
in certificates of deposit, bankers' acceptances and time deposits issued by
foreign branches of national banks. Eurodollar certificates of deposit are
negotiable U.S. dollar denominated certificates of deposit issued by foreign
branches of major U.S. commercial banks. Eurodollar bankers' acceptances are
U.S. dollar denominated bankers' acceptances "accepted" by foreign branches of
major U.S. commercial banks.
COMMERCIAL PAPER. Commercial paper consists of short-term, (usually
from one to two hundred seventy days) unsecured promissory notes issued by U.S.
and foreign corporations in order to finance their current operations.
Eurodollar commercial paper refers to notes payable by European issuers in U.S.
dollars. The Adjustable Rate U.S. Government Securities Fund will only invest in
U.S. commercial paper rated A-1 by Standard & Poor's or Prime-1 by Moody's or
unrated paper of issuers who have outstanding unsecured debt rated AAA or better
by Standard & Poor's or Aaa or better by Moody's. The Adjustable Rate U.S.
Government Securities Fund does not presently intend to invest in commercial
paper. The Global Bond Fund will only invest in commercial paper rated A-1 or
A-2 by Standard & Poor's or Prime-1 or Prime-2 by Moody's or unrated paper of
issuers who have outstanding unsecured debt rated A or better by Standard &
Poor's or Moody's. Certain notes may have floating or variable rates. Variable
and floating rate notes with a demand notice period exceeding seven days will be
subject to a Fund's restrictions on illiquid investments (see "Investment
Limitations") unless, in the judgment of the Adviser or the Sub-Adviser, subject
to the direction of the Board of Trustees, such note is liquid.
FOREIGN SECURITIES. The Global Bond Fund may invest in non- U.S. dollar
denominated debt securities principally traded in financial markets outside the
United States. Because the Fund invests in foreign securities, an investment in
the Fund involves risks that are different in some respects from an investment
in a fund which invests only in securities of U.S. domestic issuers. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S.
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companies. There may be less governmental supervision of securities markets,
brokers and issuers of securities. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
EUROPEAN CURRENCY UNIT BONDS. The European Currency Unit ("ECU") is a
basket of European currencies consisting of specified amounts of the currencies
of ten members of the European community. The ECU is used by members as their
budgetary currency to determine official claims and debts. It fluctuates with
the daily exchange rate changes of the constituent currencies. The ECU is now
defined by the following ten currencies: German Deutschmark, British Pound,
French Franc, Italian Lira, Dutch Guilder, Belgian Franc, Luxembourg Franc,
Finish Kroner, Irish Pound and Greek Drachma. ECU bonds are bonds or debentures
denominated in ECUs.
FORWARD CURRENCY EXCHANGE CONTRACTS. The value of the Global Bond
Fund's portfolio securities which are invested in non-U.S. dollar denominated
instruments as measured in U.S. dollars may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies. The Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through forward contracts to purchase or sell
foreign currencies. A forward currency exchange contract involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded directly
between currency traders (usually large commercial banks) and their customers.
The Fund will not, however, hold foreign currency except in connection with
purchase and sale of foreign portfolio securities.
The Global Bond Fund will enter into forward currency exchange
contracts as described hereafter. When the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to establish the
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cost or proceeds relative to another currency. The forward contract may be
denominated in U.S. dollars or may be a "cross-currency" contract where the
forward contract is denominated in a currency other than U.S. dollars. However,
this tends to limit potential gains which might result from a positive change in
such currency relationships.
The forecasting of a short-term currency market movement is extremely
difficult and the successful execution of a short-term hedging strategy is
highly uncertain. The Fund may enter into such forward contracts if, as a
result, not more than 50% of the value of its total assets would be committed to
such contracts. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the longer term investment decisions
made with regard to overall diversification strategies. However, the Trustees
believe that it is important to have the flexibility to enter into forward
contracts when the Sub-Adviser determines it to be in the best interests of the
Fund. The Fund's Custodian will segregate cash, U.S. Government obligations or
other liquid high-grade debt obligations in an amount not less than the value of
the Fund's total assets committed to foreign currency exchange contracts entered
into under this type of transaction. If the value of the segregated securities
declines, additional cash or securities will be added on a daily basis, i.e.,
"marked to market," so that the segregated amount will not be less than the
amount of the Fund's commitments with respect to such contracts.
Generally, the Fund will not enter into a forward currency exchange
contract with a term of greater than 90 days. At the maturity of the contract,
the Fund may either sell the portfolio security and make delivery of the foreign
currency, or may retain the security and terminate the obligation to deliver the
foreign currency by purchasing an "offsetting" forward contract with the same
currency trader obligating the Fund to purchase, on the same maturity date, the
same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the contract. Accordingly, it may
be necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in
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forward contract prices. If the Fund engages in an offsetting transaction, it
may subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline during the period between entering into a forward
contract for the sale of a foreign currency and the date the Fund enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent the price of the currency the Fund has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency the Fund has agreed to purchase exceeds the price of the currency the
Fund has agreed to sell.
The Fund's dealings in forward foreign currency exchange contracts will
be limited to the transactions described above. The Fund is not required to
enter into such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by its Sub-Adviser. It
should also be realized that this method of protecting the value of the Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities held by the
Fund. It simply establishes a rate of exchange which one can achieve at some
future point in time. Additionally, although such contracts tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time, they tend to limit any potential gain which might result should the value
of such currency increase.
INTEREST RATE FUTURES CONTRACTS. The Global Bond Fund may enter into
contracts for the future delivery of fixed-income securities commonly referred
to as "interest rate futures contracts." In this context, a futures contract is
an agreement by the Fund to buy or sell fixed-income securities at a specified
date and price. No payment is made for securities when the Fund buys a futures
contract and no securities are delivered when the Fund sells a futures contract.
Instead, the Fund makes a deposit called an "initial margin" equal to a
percentage of the contract's value. Payment or delivery is made when the
contract expires. Futures contracts will be used only as a hedge against
anticipated interest rate changes and for other transactions permitted to
entities exempt from the definition of the term commodity pool operator. The
Fund will not enter into a futures contract if immediately thereafter the sum of
the then aggregate futures market prices of financial or other instruments
required to be delivered under open futures contract sales and the aggregate
futures market prices of financial instruments required to be delivered under
open futures contract purchases would exceed 50% of the value of its total
assets. The Fund will not enter into a futures contract if immediately
thereafter more than 5% of the fair market value of its assets would be
committed to initial margins.
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WRITING COVERED CALL OPTIONS. The Global Bond Fund may write covered
call options on individual bonds and on interest rate futures contracts to earn
premium income, to assure a definite price for a security it has considered
selling, or to close out options previously purchased. A call option gives the
holder (buyer) the right to purchase a security or futures contract at a
specified price (the exercise price) at any time until a certain date (the
expiration date). A call option is "covered" if the Fund owns the underlying
security subject to the call option at all times during the option period. A
covered call writer is required to deposit in escrow the underlying security in
accordance with the rules of the exchanges on which the option is traded and the
appropriate clearing agency.
The writing of covered call options is a conservative investment
technique which the Sub-Adviser believes involves relatively little risk.
However, there is no assurance that a closing transaction can be effected at a
favorable price. During the option period, the covered call writer has, in
return for the premium received, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline.
The Fund may write covered call options if, immediately thereafter, not
more than 30% of its net assets would be committed to such transactions. As
long as the Securities and Exchange Commission continues to take the position
that unlisted options are illiquid securities, the Fund will not
commit more than 15% of its net assets to unlisted covered call
transactions and other illiquid securities. The ability of the Fund to write
covered call options may be limited by state regulations which require the Fund
to commit no more than a specified percentage of its assets to such transactions
and the tax requirement that less than 30% of the Fund's gross income be derived
from the sale or other disposition of securities held for less than 3 months.
WRITING COVERED PUT OPTIONS. The Global Bond Fund may write covered put
options on bonds and on interest rate futures contracts to assure a definite
price for a security if it is considering acquiring the security at a lower
price than the current market price or to close out options previously
purchased. A put option gives the holder of the option the right to sell, and
the writer has the obligation to buy, the underlying security at the exercise
price at any time during the option period. The operation of put options in
other respects is substantially identical to that of call options. When the Fund
writes a covered put option, it maintains in a segregated account with its
Custodian cash or liquid debt obligations in an amount not less than the
exercise price at all times while the put option is outstanding.
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The risks involved in writing put options include the risk that a
closing transaction cannot be effected at a favorable price and the possibility
that the price of the underlying security may fall below the exercise price, in
which case the Fund may be required to purchase the underlying security at a
higher price than the market price of the security at the time the option is
exercised. The Fund may not write a put option if, immediately thereafter, more
than 25% of its net assets would be committed to such transactions.
PURCHASING OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Global Bond
Fund may purchase put and call options on interest rate futures contracts. The
purchase of put options on interest rate futures contracts hedges the Fund's
portfolio against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of obtaining temporary exposure to
market appreciation at limited risk and is a hedge against a market advance when
the Fund is not fully invested. Assuming that any decline in the securities
being hedged is accompanied by a rise in interest rates, the purchase of options
on the futures contracts may generate gains which can partially offset any
decline in the value of the Fund's portfolio securities which have been hedged.
However, if after the Fund purchases an option on a futures contract, the value
of the securities being hedged moves in the opposite direction from that
contemplated, the Fund will tend to experience losses in the form of premiums on
such options which would partially offset gains the Fund would have.
An interest rate futures contract is a contract to buy or sell
specified debt securities at a future time for a fixed price. The Fund may
purchase put and call options on interest rate futures contracts which are
traded on a national exchange or board of trade and sell such options to
terminate an existing position. Options on interest rate futures give the
purchaser the right, in return for the premium paid, to assume a position in an
interest rate futures contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase or sell a
security, at a specified exercise price at any time during the period of the
option.
The holder of an option on an interest rate futures contract may
terminate his position by selling an option of the same series. There is no
guarantee that such closing transactions can be effected. In addition to the
risks which apply to all options transactions, there are several special risks
relating to options on interest rate futures contracts. The ability to establish
and close out positions on such options is subject to the maintenance of a
liquid secondary market. Compared to the use of interest rate futures, the
purchase of options on interest rate futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options,
plus transaction costs.
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OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the Global
Bond Fund may engage involve the specific risks described above as well as the
following risks: the writer of an option may be assigned an exercise at any time
during the option period; disruptions in the markets for underlying instruments
could result in losses for options investors; imperfect or no correlation
between the option and the securities being hedged; the insolvency of a broker
could present risks for the broker's customers; and market imposed restrictions
may prohibit the exercise of certain options. In addition, the option activities
of the Fund may affect its portfolio turnover rate and the amount of brokerage
commissions paid by the Fund. The success of the Fund in using the option
strategies described above depends, among other things, on the Sub-Adviser's
ability to predict the direction and volatility of price movements in the
options, futures contracts and securities markets and the Sub-Adviser's ability
to select the proper time, type and duration of the options.
MAJORITY. As used in the Prospectuses and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the applicable Fund) present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust (or the applicable Fund) are present
or represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or the applicable Fund).
INVESTMENT LIMITATIONS
The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Funds. These limitations may
not be changed with respect to any Fund without the affirmative vote of a
majority of the outstanding shares of that Fund.
THE LIMITATIONS APPLICABLE TO THE SHORT TERM GOVERNMENT INCOME FUND AND
THE INTERMEDIATE TERM GOVERNMENT INCOME FUND ARE:
1. Borrowing Money. Each Fund will not borrow money, except (a) as a
temporary measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of the Fund's total assets or (b)
pursuant to Paragraph (15) of this section. Each Fund may pledge its assets to
the extent of up to 15% of the value of its total assets to secure such
borrowings.
2. Underwriting. Each 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), a
Fund may be deemed an underwriter under certain federal securities laws.
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<PAGE>
3. Illiquid Investments. Each Fund will not purchase securities for
which there are legal or contractual restrictions on resale or enter into a
repurchase agreement maturing in more than seven days if, as a result thereof,
more than 10% of the value of the Fund's total assets would be invested in such
securities.
4. Real Estate. Each Fund will not purchase, hold or deal in real
estate, including real estate limited partnership interests.
5. Commodities. Each Fund will not purchase, hold or deal
in commodities or commodities futures contracts.
6. Loans. Each Fund will not make loans to individuals, to any officer
or Trustee of the Trust or to its Adviser or to any officer or director of the
Adviser (each Fund, however, may purchase and simultaneously resell for later
delivery obligations issued or guaranteed as to principal and interest by the
United States Government or an agency or instrumentality thereof; provided that
each Fund will not enter into such repurchase agreements if, as a result
thereof, more than 10% of the value of the Fund's total assets at that time
would be subject to repurchase agreements maturing in more than seven days). The
making of a loan by either Fund does not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other debt securities,
whether or not the purchase was made upon the original issuance of the
securities.
7. Securities of One Issuer. Each Fund will not purchase the securities
of any issuer if such purchase at the time thereof would cause more than 25% of
the value of the Fund's total assets to be invested in the securities of such
issuer (the foregoing limitation does not apply to investments in government
securities as defined in the Investment Company Act of 1940).
8. Securities of One Class. Each Fund will not purchase the securities
of any issuer if such purchase at the time thereof would cause 10% of any class
of securities of such issuer to be held by a Fund, or acquire more than 10% of
the outstanding voting securities of such issuer. (All outstanding bonds and
other evidences of indebtedness shall be deemed to be a single class of
securities of the issuer, and all kinds of stock of an issuer preferred over the
common stock as to dividends or liquidation shall be deemed to constitute a
single class regardless of relative priorities, series designations, conversion
rights and other differences).
9. Investing for Control. Each Fund will not invest in companies
for the purpose of exercising control or management.
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<PAGE>
10. Other Investment Companies. Each Fund will not purchase securities
issued by any other investment company or investment trust except (a) by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than customary brokers' commission or (b) where
such purchase, not made in the open market, is part of a plan of merger or
consolidation or acquisition of assets; provided that each Fund shall not
purchase the securities of any investment companies or investment trusts if such
purchase at the time thereof would cause more than 10% of the value of the
Fund's total assets to be invested in the securities of such issuers, and
provided further, that each Fund shall not purchase securities issued by any
other open-end investment company.
11. Margin Purchases. Each Fund will not purchase securities or
evidences of interest thereon on "margin," except that the Funds may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales or redemption of securities.
12. Common Stocks. Each Fund will not invest in common stocks.
13. Options. Each Fund will not engage in the purchase or
sale of put or call options.
14. Short Sales. Each Fund will not sell any securities short.
15. When-Issued Purchases. The Funds will not make any commitment to
purchase securities on a when-issued basis except that the Intermediate Term
Government Income Fund may make such commitments if no more than 20% of the
Fund's net assets would be so committed.
16. Concentration. Each 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 or repurchase agreements with respect thereto.
17. Mineral Leases. The Funds will not purchase oil, gas or other
mineral leases or exploration or development programs.
THE LIMITATIONS APPLICABLE TO THE INSTITUTIONAL GOVERNMENT INCOME
FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except
(a) from a bank, provided that immediately after such borrowing
there is asset coverage of 300% for all borrowings of the Fund;
or (b) from a bank for temporary purposes only, provided that,
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<PAGE>
when made, such temporary borrowings are in an amount not exceeding 5% of the
Fund's total assets. The Fund also will not make any borrowing which would cause
its outstanding borrowings to exceed one-third of the value of its total assets.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Underwriting. The Fund will not act as underwriter of
securities issued by other persons. This limitation is not applicable to the
extent that, in connection with the disposition of portfolio securities
(including restricted securities), the Fund may be deemed an underwriter under
certain federal securities laws.
4. Illiquid Investments. The Fund will not invest more than 10%
of its net assets in securities for which there are legal or contractual
restrictions on resale and other illiquid securities.
5. Real Estate. The Fund will not purchase, hold or deal in real
estate.
6. Commodities. The Fund will not purchase, hold or deal in commodities
or commodities futures contracts, or invest in oil, gas or other mineral
explorative or development programs. This limitation is not applicable to the
extent that the U.S. Government obligations in which the Fund may otherwise
invest would be considered to be such commodities, contracts or investments.
7. Loans. The Fund will not make loans to other persons,
except (a) by loaning portfolio securities, or (b) by engaging in repurchase
agreements. For purposes of this limitation, the term "loans" shall not include
the purchase of a portion of an issue of U.S. Government obligations.
8. Margin Purchases. The Fund will not purchase securities
or evidences of interest thereon on "margin." This limitation is
not applicable to short-term credit obtained by the Fund for the
clearance of purchases and sales or redemption of securities.
9. Short Sales and Options. The Fund will not sell any
securities short or sell put and call options. This limitation is not applicable
to the extent that sales by the Fund of securities in which the Fund may
otherwise invest would be considered to be sales of options.
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<PAGE>
10. Other Investment Companies. The Fund will not invest more than
5% of its total assets in the securities of any investment company and will
not invest more than 10% of its total assets in securities of other investment
companies.
11. Concentration. The Fund will not invest more than 25% of its total
assets in a particular industry; this limitation is not applicable to
investments in obligations issued by the U.S. Government, its territories and
possessions, the District of Columbia and their respective agencies and
instrumentalities or repurchase agreements with respect thereto.
12. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases or exploration or development programs.
THE LIMITATIONS APPLICABLE TO THE ADJUSTABLE RATE U.S. GOVERNMENT
SECURITIES FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) 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 or (b) pursuant to
Paragraph (15) of this section. The Fund may pledge its assets to the extent of
up to 15% of the value of its total assets to secure such borrowings.
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 securities for
which there are legal or contractual restrictions on resale or enter into a
repurchase agreement maturing in more than seven days if, as a result thereof,
more than 15% of the value of the Fund's net assets would be invested in such
securities.
4. Real Estate. The Fund will not purchase, hold or deal
in real estate, including real estate limited partnerships.
5. Commodities. The Fund will not purchase, hold or deal
in commodities or commodities futures contracts.
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<PAGE>
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities if the borrower agrees to maintain collateral
marked to market daily in an amount at least equal to the market value of the
loaned securities, or (b) by engaging in repurchase agreements. For purposes of
this limitation, the term "loans" shall not include the purchase of a portion of
an issue of U.S. Government obligations.
7. Securities of One Issuer. The Fund will not purchase the securities
of any issuer if such purchase at the time thereof would cause more than 5% of
the value of its total assets to be invested in the securities of such issuer
(the foregoing limitation does not apply to investments in government securities
as defined in the Investment Company Act of 1940).
8. Securities of One Class. The Fund will not purchase the securities
of any issuer if such purchase at the time thereof would cause 10% of any class
of securities of such issuer to be held by the Fund, or acquire more than 10% of
the outstanding voting securities of such issuer. (All outstanding bonds and
other evidences of indebtedness shall be deemed to be a single class of
securities of the issuer).
9. Investing for Control. The Fund will not invest in companies for
the purpose of exercising control or management.
10. Other Investment Companies. The Fund will not invest
more than 5% of its total assets in the securities of any investment company and
will not invest more than 10% of its total assets in securities of other
investment companies.
11. Margin Purchases. The Fund will not purchase securities
or evidences of interest thereon on "margin," except that it may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales or redemption of securities.
12. Common Stocks. The Fund will not invest in common stocks.
13. Options. The Fund will not engage in the purchase or
sale of put or call options.
14. Short Sales. The Fund will not sell any securities short.
15. When-Issued Purchases. The Fund will not make any
commitment to purchase securities on a when-issued or to-be-announced
basis if more than 25% of the Fund's net assets would be so committed.
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<PAGE>
16. 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 or repurchase agreements with respect thereto.
17. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases or exploration or development programs.
18. 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.
19. Unseasoned Issuers. The Fund will not purchase
securities of unseasoned issuers, including their predecessors,
which have been in operation for less than three years if more
than 5% of the value of the Fund's total assets would be so
committed.
THE LIMITATIONS APPLICABLE TO THE GLOBAL BOND FUND ARE:
1. Borrowing Money. The Fund will not borrow money, 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. While the Fund's
borrowings are in excess of 5% of its total assets, the Fund will not purchase
any additional portfolio securities. This investment limitation does not
preclude the Fund from entering into reverse repurchase transactions, provided
that the Fund has asset coverage of 300% for all borrowings of the Fund and
reverse repurchase commitments of the Fund pursuant to such transactions. The
Fund will not pledge, mortgage or hypothecate its assets (collateral
arrangements with respect to writing options and initial margin on futures
contracts are not deemed to be a pledge, mortgage or hypothecation of assets for
purposes of this investment limitation) except in connection with borrowings
described in this investment limitation.
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 securities for
which there are legal or contractual restrictions on resale or enter into a
repurchase agreement maturing in more than seven days if, as a result thereof,
more than 15% of the value of the Fund's net assets would be invested in such
securities.
- 25 -
<PAGE>
4. Real Estate. The Fund will not purchase, hold or deal
in real estate, including real estate limited partnerships.
5. Commodities. The Fund will not purchase, hold or deal in
commodities or commodities futures contracts.
6. Loans. The Fund will not make loans to other persons, except (a) by
loaning portfolio securities if the borrower agrees to maintain collateral
marked to market daily in an amount at least equal to the market value of the
loaned securities, or (b) by engaging in repurchase agreements. For purposes of
this limitation, the term "loans" shall not include the purchase of marketable
bonds, debentures, commercial paper, corporate notes or similar marketable
evidences of indebtedness which are part of an issue for the public.
7. Investing for Control. The Fund will not invest in companies for
the purpose of exercising control or management.
8. Other Investment Companies. The Fund will not invest more than 5% of
its total assets in the securities of any single investment company and will not
invest more than 10% of its total assets in securities of other investment
companies.
9. Margin Purchases. The Fund will not purchase any
securities or evidences of interest thereon on "margin," except that it may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales or redemption of securities.
10. Common Stocks. The Fund will not invest in common stocks.
11. Options. The Fund will not purchase or sell puts,
calls, options, futures or straddles except as described in its Prospectus and
this Statement of Additional Information.
12. Short Sales. The Fund will not sell any securities short.
13. When-Issued Purchases. The Fund will not make any
commitment to purchase securities on a when-issued or to-be-announced
basis if more than 25% of the Fund's net assets would be so committed.
14. 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, its agencies or
instrumentalities or repurchase agreements with respect thereto.
- 26 -
<PAGE>
15. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases or exploration or development programs.
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. This limitation is not applicable to arrangements with respect
to transactions involving forward foreign currency exchange contracts, options,
futures contracts and other similar permitted investments and techniques.
17. Unseasoned Issuers. The Fund will not purchase securities
of unseasoned issuers, including their predecessors, which have been in
operation for less than three years if more than 5% of the value of the
Fund's total assets would be so committed.
With respect to the percentages adopted by the Trust as maximum
limitations on the Funds' 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 has never pledged, mortgaged or hypothecated the assets of
any Fund, and the Trust presently intends to continue this policy. The Trust has
never acquired, nor does it presently intend to acquire, securities issued by
any other investment company or investment trust. The Institutional Government
Income Fund does not intend to invest in obligations issued by territories and
possessions of the United States, the District of Columbia and their respective
agencies and instrumentalities or repurchase agreements with respect thereto.
The Short Term Government Income Fund and the Intermediate Term Government
Income Fund will not purchase securities for which there are legal or
contractual restrictions on resale or enter into a repurchase agreement maturing
in more than seven days if, as a result thereof, more than 10% of the value of a
Fund's net assets would be invested in such securities. The statements of
intention in this paragraph reflect nonfundamental policies which may be changed
by the Board of Trustees without shareholder approval.
Although not a fundamental policy of the Adjustable Rate U.S.
Government Securities Fund, portfolio investments and transactions of the Fund
will be limited to those investments and transactions permissible for Federal
credit unions pursuant to 12 U.S.C. Section 1757(7) and (8) and 12 CFR Part 703.
If this policy is changed as to allow the Fund to make portfolio investments and
engage in transactions not permissible for Federal credit unions, the Fund will
so notify all Federal credit union shareholders.
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<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and executive officers of the
Trust and their aggregate compensation from the Trust and the Midwest complex
(consisting of the Trust, Midwest Group Tax Free Trust and Midwest Strategic
Trust) for the fiscal year ended September 30, 1996. 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 Trustee is also a Trustee of Midwest
Group Tax Free 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 ......... 57 President/Trustee $ 0 $ 0
+Dale P. Brown ............. 49 Trustee 2,733 7,000
Gary W. Heldman ........... 49 Trustee 2,549 6,600
+H. Jerome Lerner .......... 58 Trustee 2,849 8,100
+Richard A. Lipsey ......... 57 Trustee 2,733 7,000
Donald J. Rahilly ......... 51 Trustee 2,333 6,100
Fred A. Rappoport ......... 50 Trustee 2,333 6,100
Oscar P. Robertson ........ 58 Trustee 2,549 6,600
Robert B. Sumerel ......... 55 Trustee 2,333 6,100
John F. Splain ............ 40 Secretary 0 0
Mark J. Seger ............. 35 Treasurer 0 0
</TABLE>
* 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.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is
Chairman of the Board of Midwest Group Financial Services, Inc. (the investment
adviser and principal underwriter of the Trust), MGF Service Corp. (a registered
transfer agent) and Leshner Financial, Inc. (a financial services company and
parent of Midwest Group Financial Services, Inc. and MGF Service Corp.). He is
President and a Trustee of Midwest Group Tax Free Trust and Midwest Strategic
Trust, registered investment companies.
DALE P. BROWN, 36 East Seventh Street, Cincinnati, Ohio is
President and Chief Executive Officer of Sive/Young & Rubicam, an advertising
agency. She is also a director of The Ohio National Life Insurance Company.
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<PAGE>
GARY W. HELDMAN, 183 Congress Run Road, Cincinnati, Ohio is
the former President of The Fechheimer Brothers Company, a manufacturer of
uniforms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc., a manufacturer of
electronic connectors.
RICHARD A. LIPSEY, 11478 Rue Concord, Baton Rouge, Louisiana
is President and Chief Executive Officer of Lipsey's, Inc., a national sporting
goods distributor. He is also a Regional Director of Bank One, Louisiana, N.A.
DONALD J. RAHILLY, 9933 Alliance Road, Cincinnati, Ohio is
Chairman of S. Rosenthal & Co., Inc., a printing company.
FRED A. RAPPOPORT, 830 Birchwood Drive, Los Angeles, California is
President and Chairman of The Fred Rappoport Company, a broadcasting and
entertainment production company.
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is President
of Orchem, Inc., a chemical specialties distributor, and Orpack Stone
Corporation, a corrugated box manufacturer.
ROBERT B. SUMEREL, 8675 Bridgewater Lane, Cincinnati, Ohio is Chief
Executive Officer of Bob Sumerel Tire Co., 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 Group Tax Free Trust,
Midwest Strategic Trust, Brundage, Story and Rose Investment Trust, Williamsburg
Investment Trust, Markman MultiFund Trust, The Tuscarora Investment Trust,
PRAGMA Investment Trust, Maplewood Investment Trust and The Thermo Opportunity
Fund, Inc. and Assistant Secretary of Schwartz Investment Trust, Fremont Mutual
Funds, Inc., The Gannett Welsh & Kotler Funds and Capitol Square Funds, 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 Group Tax Free Trust, Midwest Strategic Trust, Brundage, Story and
Rose Investment Trust, Williamsburg Investment Trust, Markman MultiFund Trust,
PRAGMA Investment Trust, Maplewood Investment Trust, The Thermo Opportunity
Fund, Inc. and Capitol Square Funds, Assistant Treasurer of Schwartz Investment
Trust, The Tuscarora Investment Trust and The Gannett Welsh & Kotler Funds and
Assistant Secretary of Fremont Mutual Funds, Inc.
- 29 -
<PAGE>
THE INVESTMENT ADVISER AND UNDERWRITER
Midwest Group Financial Services, Inc. (the "Adviser") is the Funds'
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 agreements between the Trust
and the Adviser, the Adviser is responsible for the management of the Funds'
investments. The Short Term Government Income Fund, the Intermediate Term
Government Income Fund and the Adjustable Rate U.S. Government Securities Fund
each pay 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 $50,000,000, .45% of
such assets from $50,000,000 to $150,000,000, .4% of such assets from
$150,000,000 to $250,000,000 and .375% of such assets in excess of $250,000,000.
The Institutional Government Income Fund pays the Adviser a fee computed and
accrued daily and paid monthly at an annual rate of .2% of its average daily net
assets. The Global Bond Fund pays the Adviser a fee computed and accrued daily
and paid monthly at an annual rate of .7% of its average daily net assets up to
$100,000,000 and .6% of such assets in excess of $100,000,000. The total fees
paid by a 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.
For the fiscal years ended September 30, 1996, 1995 and 1994, the Short
Term Government Income Fund paid advisory fees of $419,926, $407,097 and
$410,716, respectively. For the fiscal years ended September 30, 1996, 1995 and
1994, the Intermediate Term Government Income Fund accrued advisory fees of
$289,680, $294,316 and $378,622, respectively; however, the Adviser reimbursed
the Fund for $10,334 and $11,362 of Class C expenses during the fiscal years
ended September 30, 1996 and 1995, respectively, and voluntarily waived $2,297
of its advisory fees for the fiscal year ended September 30, 1994 in order to
reduce the operating expenses of the Fund. For the fiscal years ended September
30, 1996, 1995 and 1994, the Institutional Government Income Fund accrued
advisory fees of $70,752, $86,367 and $89,790, respectively; however, the
Adviser voluntarily waived $32,783, $8,500 and $9,000 of such fees for the
fiscal years ended September 30, 1996, 1995 and 1994, respectively, in order to
reduce the operating expenses of the Fund. For the fiscal years ended September
30, 1996, 1995 and 1994, the Adjustable Rate U.S. Government Securities Fund
accrued advisory fees of
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<PAGE>
$79,927, $112,333 and $238,362, respectively; however, the Adviser voluntarily
waived all of its fees and reimbursed $33,564 of common expenses and $11,886 of
Class C expenses for the fiscal year ended September 30, 1996, voluntarily
waived $103,298 of its advisory fees and reimbursed the Fund for $4,898 of Class
C expenses for the fiscal year ended September 30, 1995 and voluntarily waived
$45,624 of its advisory fees for the fiscal year ended September 30, 1994 in
order to reduce the operating expenses of the Fund. For the fiscal periods ended
September 30, 1996 and 1995, the Global Bond Fund accrued advisory fees of
$137,065 and $41,518, respectively; however, the Adviser voluntarily waived
$6,473 of its fees and reimbursed the Fund for $16,631 of Class A expenses for
the fiscal year ended September 30, 1996 and voluntarily waived its entire
advisory fee and reimbursed the Fund for $22,707 of common expenses and $6,493
of Class C expenses for the period ended September 30, 1995 in order to reduce
the operating expenses of the Fund.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds 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 Funds' shares to the extent that such
expenses are not assumed by the Funds under their plans 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 may be paid by the Trust regardless of the Chief
Financial Officer's relationship with the Adviser.
By their terms, the Funds' investment advisory agreements remain in
force from year to year, subject to annual approval by (a) the Board of Trustees
or (b) a vote of the majority of a 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 Funds'
investment advisory agreements 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 a Fund's outstanding voting securities, or by the
Adviser. The investment advisory agreements automatically terminate in the event
of their assignment, as defined by the Investment Company Act of 1940 and the
rules thereunder.
- 31 -
<PAGE>
The Adviser may use the name "Midwest" in connection with any
registered investment company or other business enterprise with which it is or
may become associated.
The Adviser is also the principal underwriter of the Funds and, as
such, the exclusive agent for distribution of shares of the Funds. The Adviser
is obligated to sell the shares on a best efforts basis only against purchase
orders for the shares. Shares of each Fund are offered to the public on a
continuous basis.
The Adviser currently allows concessions to dealers who sell shares of
the Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund. The Adviser retains the
entire sales load on all direct initial investments in the Funds and on all
investments in accounts with no designated dealer of record. For the fiscal year
ended September 30, 1996, the aggregate commissions on sales of the Trust's
shares were $72,287, of which the Adviser paid $63,235 to unaffiliated
broker-dealers in the selling network, earned $3,313 as a broker-dealer in the
selling network and retained $5,739 in underwriting commissions. For the fiscal
year ended September 30, 1995, the aggregate commissions on sales of the Trust's
shares were $141,293, of which the Adviser paid $130,182 to unaffiliated
broker-dealers in the selling network, earned $5,053 as a broker-dealer in the
selling network and retained $6,058 in underwriting commissions. For the fiscal
year ended September 30, 1994, the aggregate underwriting commissions on sales
of the Trust's shares were $153,921, of which the Adviser paid $146,864 to
unaffiliated broker-dealers in the selling network and earned $7,057 as a
broker-dealer in the selling network.
The Adviser retains the contingent deferred sales load on redemptions
of shares of the Intermediate Term Government Income Fund, the Adjustable Rate
U.S. Government Securities Fund and the Global Bond Fund which are subject to a
contingent deferred sales load. For the fiscal year ended September 30, 1996,
the Adviser retained $913, $600 and $5,973 of contingent deferred sales loads on
redemptions of Class C shares of the Intermediate Term Government Income Fund,
the Adjustable Rate U.S. Government Securities Fund and the Global Bond Fund,
respectively.
The Funds may compensate dealers, including the Adviser and
its affiliates, based on the average balance of all accounts in the Funds for
which the dealer is designated as the party responsible for the account. See
"Distribution Plans below."
The Adviser and MGF Service Corp., the Trust's transfer
agent, accounting and pricing agent and administrative agent (see "MGF
Service Corp."), are each a wholly-owned subsidiary of Leshner Financial, Inc.,
of which Robert H. Leshner is the controlling shareholder. Pursuant
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to an agreement dated December 10, 1996 between the shareholders of Leshner
Financial, Inc. and Countrywide Credit Industries, Inc. ("CCI"), CCI has agreed
to acquire all of the outstanding common stock of Leshner Financial, Inc. in
exchange for newly issued common stock of CCI. Following such acquisition, which
is expected to be consummated on or about February 28, 1997, Leshner Financial,
Inc. will be a wholly-owned subsidiary of CCI. CCI is a New York Stock Exchange
listed company principally engaged in residential mortgage lending.
HANOVER CAPITAL ADVISORS INC. Hanover Capital Advisors Inc. ("Hanover")
regularly reviews the Adjustable Rate U.S. Government Securities Fund's
portfolio holdings and overall investment strategy. Hanover confers periodically
with the Adviser to make recommendations concerning the investment programs of
the Fund. Such recommendations may include (i) the specific securities to be
held by the Fund and the proportion of the Fund's assets that should be
allocated to such investments during particular market cycles, (ii) the specific
issuers whose securities should be purchased or sold by the Fund, (iii) credit
guidelines for the issuers of securities in the Fund's portfolio, (iv) the
maximum maturity of the Fund's portfolio investments and (v) the appropriate
average weighted maturity of the Fund's portfolio in light of current market
conditions. Hanover receives a fee equal to the annual rate of .25% of the
Fund's average daily net assets up to $50,000,000, .225% of such assets from
$50,000,000 to $150,000,000, .2% of such assets from $150,000,000 to
$250,000,000 and .1875% of such assets in excess of $250,000,000. The services
provided by Hanover are paid for wholly by the Adviser. The fee paid to Hanover
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 compensation of any officer, director or employee of
Hanover who is rendering services to the Fund is paid by Hanover. For the fiscal
years ended September 30, 1996, 1995 and 1994, the Adviser paid to Hanover
advisory fees of $322, $11,493 and $71,807, respectively.
The Adviser also compensates Hanover for providing administration
services to the Adjustable Rate U.S. Government Securities Fund accounts for
which Hanover is designated as the responsible party. Hanover receives a fee
equal to the annual rate of .25% of the average balance of all such accounts.
For the fiscal years ended September 30, 1996, 1995 and 1994, the Adviser paid
to Hanover administration fees of $805, $12,118 and $105,902, respectively.
The Fund may reimburse the Adviser for these amounts pursuant to the Fund's
plans of distribution. See "Distribution Plans below."
Upon consummation of the acquisition of Leshner Financial, Inc by CCI,
the Subadvisory Agreement between Hanover and the Adviser will terminate
and Hanover will no longer provide advisory services to the Adjustable Rate U.S.
Government Securities Fund.
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ROGGE GLOBAL PARTNERS PLC. Rogge Global Partners plc ("Rogge") has been
retained by the Adviser to serve as the discretionary portfolio adviser of the
Global Bond Fund. Rogge selects the portfolio securities for investment by the
Fund, purchases and sells securities of the Fund and places orders for the
execution of such portfolio transactions, subject to the general supervision of
the Board of Trustees and the Adviser. Rogge receives a fee equal to the annual
rate of .35% of the Fund's average daily net assets up to and including
$100,000,000 and .3% of such assets in excess of $100,000,000. The services
provided by Rogge are paid for wholly by the Adviser. The compensation of any
officer, director or employee of Rogge who is rendering services to the Fund is
paid by Rogge. For the fiscal years ended September 30, 1996 and 1995, the
Adviser paid to Rogge advisory fees of $68,532 and $18,413, respectively.
DISTRIBUTION PLANS
CLASS A PLAN -- As stated in the Prospectus, the Funds have adopted a
plan of distribution (the "Class A Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 which permits each Fund to pay for expenses
incurred in the distribution and promotion of the Funds' 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 Class A Plan expressly limits payment
of the distribution expenses listed above in any fiscal year to a maximum of
.35% of the average daily net assets of the Short Term Government Income Fund,
.35% of the average daily net assets of the Class A shares of the Intermediate
Term Government Income Fund, the Adjustable Rate U.S. Government Securities Fund
and the Global Bond Fund and .10% of the average daily net assets of the
Institutional Government Income Fund. Unreimbursed expenses will not be carried
over from year to year.
For the fiscal year ended September 30, 1996, the aggregate
distribution-related expenditures of the Short Term Government Income Fund
("STF"), the Intermediate Term Government Income Fund ("ITF"), the Institutional
Government Income Fund ("IGF"), the Adjustable Rate U.S. Government Securities
Fund ("ARM") and the Global Bond Fund ("GBF") under the Class A Plan were
$93,521, $93,442, $2,655, $17,500 and $4,709, respectively. Amounts were spent
as follows:
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STF ITF IGF ARM GBF
Printing and mailing
of prospectuses and
reports to prospective
shareholders ................ $ 4,521 $ 3,108 $ 2,655 $ 5,614 $ 4,212
Payments to broker-
dealers and others
for the sale or
retention of assets ......... 89,000 90,334 -- 11,886 497
------- ------- ------- ------- -------
$93,521 $93,442 $ 2,655 $17,500 $ 4,709
======= ======= ======= ======= =======
CLASS C PLAN (Intermediate Term Government Income Fund, Adjustable Rate
U.S. Government Securities Fund and Global Bond Fund) -- The Intermediate Term
Government Income Fund, the Adjustable Rate U.S. Government Securities Fund and
the Global Bond Fund have also adopted a plan of distribution (the "Class C
Plan") with respect to the Class C shares of such Funds. The Class C Plan
provides for two categories of payments. First, the Class C Plan provides for
the payment to the Adviser of an account maintenance fee, in an amount equal to
an annual rate of .25% of the average daily net assets of the Class C shares,
which may be paid to other dealers based on the average value of Class C shares
owned by clients of such dealers. In addition, a Fund may pay up to an
additional .75% per annum of the daily net assets of the Class C shares for
expenses incurred in the distribution and promotion of the shares, including
prospectus costs for prospective shareholders, costs of responding to
prospective shareholder inquiries, payments to brokers and dealers for selling
and assisting in the distribution of Class C shares, costs of advertising and
promotion and any other expenses related to the distribution of the Class C
shares. Unreimbursed expenditures will not be carried over from year to year.
The Funds may make payments to dealers and other persons in an amount up to .75%
per annum of the average value of Class C shares owned by their clients, in
addition to the .25% account maintenance fee described above.
For the fiscal year ended September 30, 1996, the aggregate
distribution-related expenditures of the Intermediate Term Government Income
Fund ("ITF"), the Adjustable Rate U.S. Government Securities Fund ("ARM") and
the Global Bond Fund ("GBF") under the Class C Plan were $40, $19 and $24,181,
respectively. Amounts were spent as follows:
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<PAGE>
ITF ARM GBF
Printing and mailing
of prospectuses and
reports to prospective
shareholders......... $40 $19 $ 1,547
Payments to broker-
dealers and others
for the sale or
retention of assets... --- --- 22,634
--- --- -------
$40 $19 $24,181
=== === =======
GENERAL INFORMATION -- Agreements implementing the Plans (the
"Implementation Agreements"), including agreements with dealers wherein such
dealers agree for a fee to act as agents for the sale of the Funds' shares, are
in writing and have been approved by the Board of Trustees. All payments made
pursuant to the Plans are made in accordance with written agreements.
The continuance of the Plans 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 Plans or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. A Plan may be terminated at any time
by a vote of a majority of the Independent Trustees or by a vote of the holders
of a majority of the outstanding shares of a Fund or the applicable class of a
Fund. In the event a Plan is terminated in accordance with its terms, the
affected Fund (or class) 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 a Fund (or the
applicable class) on not more than 60 days' written notice to any other party to
the Implementation Agreement. The Plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval.
All material amendments to the Plans must be approved by a vote of the Trust's
Board of Trustees and by a vote of the Independent Trustees.
In approving the Plans, 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 Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of
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<PAGE>
scale, greater investment flexibility, greater portfolio diversification and
less chance of disruption of planned investment strategies. The Plans will be
renewed only if the Trustees make a similar determination for each subsequent
year of the Plans. There can be no assurance that the benefits anticipated from
the expenditure of the Funds' assets for distribution will be realized. While
the Plans are in effect, all amounts spent by the Funds pursuant to the Plans
and the purposes for which such expenditures were made must be reported
quarterly to the Board of Trustees for its review. Distribution expenses
attributable to the sale of more than one class of shares of a Fund will be
allocated at least annually to each class of shares based upon the ratio in
which the sales of each class of shares bears to the sales of all the shares of
such Fund. 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 Plans
and the Implementation Agreements.
SECURITIES TRANSACTIONS
Decisions to buy and sell securities for the Funds and the placing of
the Funds' securities transactions and negotiation of commission rates where
applicable are made by the Adviser (or Rogge, with respect to the Global Bond
Fund) and are subject to review by the Board of Trustees of the Trust. In the
purchase and sale of portfolio securities, the Adviser (or Rogge) seeks best
execution for the Funds, 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
(or Rogge) generally seeks favorable prices and commission rates that are
reasonable in relation to the benefits received.
Generally, the Funds attempt 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 Funds may be purchased
directly from the issuer. Because the portfolio securities of the Funds 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 Funds will consist primarily of dealer or underwriter
spreads. For the fiscal year ended September 30, 1994, the Short Term Government
Income Fund and the Intermediate Term Government Income Fund paid brokerage
commissions of $74 and $15,313, respectively. No
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<PAGE>
brokerage commissions were paid by the Short Term Government Income Fund and the
Intermediate Term Government Income Fund during the fiscal years ended September
30, 1996 and 1995. No brokerage commissions were paid by the Institutional
Government Income Fund, the Adjustable Rate U.S. Government Securities Fund or
the Global Bond Fund during the last three fiscal years.
The Adviser (or Rogge, with respect to the Global Bond Fund) is
specifically authorized to select brokers who also provide brokerage and
research services to the Funds and/or other accounts over which the Adviser (or
Rogge) exercises investment discretion and to pay such brokers a commission in
excess of the commission another broker would charge if it is determined 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 (or Rogge's) overall
responsibilities with respect to the Funds 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 Funds 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 Funds, the
Adviser and Rogge, it is not possible to place a dollar value on it. Research
services furnished by brokers through whom the Funds effect securities
transactions may be used by the Adviser (or Rogge) in servicing all of its
accounts and not all such services may be used in connection with the Funds.
The Funds have 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. No Fund will 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 Funds do 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 Funds with
other brokers.
During the fiscal year ended September 30, 1996, the Funds entered into
repurchase transactions with the following of the
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<PAGE>
Trust's regular broker-dealers as defined under the Investment Company Act of
1940: Daiwa Securities America Inc., Dean Witter Reynolds Inc., Fuji Securities
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Nesbitt Burns
Securities Inc. and Prudential Securities Incorporated.
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 any 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 Funds in the same (or equivalent) security.
PORTFOLIO TURNOVER
The Adviser intends to hold the portfolio securities of the Short Term
Government Income Fund and the Institutional Government Income Fund to maturity
and to limit portfolio turnover to the extent possible. Nevertheless, changes in
a 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 Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund do not intend to purchase
securities for short term trading; however, a security may be sold in
anticipation of a market decline, or purchased in anticipation of a market rise
and later sold. Securities will be purchased and sold in response to the
Adviser's (or Rogge's) evaluation of an issuer's ability to meet its debt
obligations in the future. A security may be sold and another purchased when, in
the opinion of the Adviser (or Rogge), a favorable yield spread exists between
specific issues or different market sectors.
A Fund's portfolio turnover rate is calculated by dividing
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<PAGE>
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 Funds. A 100% turnover rate would occur if all of a Fund's portfolio
securities were replaced once within a one year period.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
The share price (net asset value) of the shares of the Short Term
Government Income Fund and the Institutional Government Income Fund is
determined as of 12:30 p.m. and 4:00 p.m., Eastern time, on each day the Trust
is open for business. The share price (net asset value) and the public offering
price (net asset value plus applicable sales load) of the shares of the
Intermediate Term Government Income Fund, the Adjustable Rate U.S. Government
Securities Fund and the Global Bond 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 any Fund's portfolio
securities that its net asset value might be materially affected. The Global
Bond Fund's net asset value may be materially affected on a day when the Trust
is not open for business because trading in foreign exchanges may take place at
times other than the times trading occurs on the New York Stock Exchange. In
addition, foreign exchange trading may not take place on each day the Trust is
open for business. For a description of the methods used to determine the share
price and the public offering price, see "Calculation of Share Price and Public
Offering Price" in the Prospectus.
Pursuant to Rule 2a-7 promulgated under the Investment Company Act of
1940, the Short Term Government Income Fund and the Institutional Government
Income Fund each value their portfolio securities on an amortized cost basis.
The use of the amortized cost method of valuation involves valuing an instrument
at its cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. Under the amortized cost method of
valuation, neither the amount of daily income nor the net asset value of the
Short Term Government Income Fund or the Institutional Government Income Fund is
affected by any unrealized appreciation or depreciation of the portfolio. The
Board of Trustees has determined in good faith that utilization of amortized
cost is appropriate and
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<PAGE>
represents the fair value of the portfolio securities of the Short Term
Government Income Fund and the Institutional Government Income Fund.
Pursuant to Rule 2a-7, the Short Term Government Income Fund and the
Institutional Government Income Fund each maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only securities having remaining
maturities of thirteen months or less and invest only in United States
dollar-denominated securities determined by the Board of Trustees to be of high
quality and to present minimal credit risks. If a security ceases to be an
eligible security, or if the Board of Trustees believes such security no longer
presents minimal credit risks, the Trustees will cause the Fund to dispose of
the security as soon as possible. The maturity of U.S. Government obligations
which have a variable rate of interest readjusted no less frequently than
annually will be deemed to be the period of time remaining until the next
readjustment of the interest rate.
The Board of Trustees has established procedures designed to stabilize,
to the extent reasonably possible, the price per share of the Short Term
Government Income Fund and the Institutional Government Income Fund as computed
for the purpose of sales and redemptions at $1 per share. The procedures include
review of each Fund's portfolio holdings by the Board of Trustees to determine
whether a Fund's net asset value calculated by using available market quotations
deviates more than one-half of one percent from $1 per share and, if so, whether
such deviation may result in material dilution or is otherwise unfair to
existing shareholders. In the event the Board of Trustees determines that such a
deviation exists, it will take corrective action as it regards necessary and
appropriate, including the sale of portfolio securities prior to maturity to
realize capital gains or losses or to shorten average portfolio maturities;
withholding dividends; redemptions of shares in kind; or establishing a net
asset value per share by using available market quotations. The Board of
Trustees has also established procedures designed to ensure that each Fund
complies with the quality requirements of Rule 2a-7.
While the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument, as determined by
amortized cost, is higher or lower than the price the Short Term Government
Income Fund or the Institutional Government Income Fund would receive if it sold
the instrument. During periods of declining interest rates, the daily yield on
shares of each Fund may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its portfolio securities. Thus,
if the use of amortized cost by a Fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in the Fund would be able to
obtain a somewhat higher
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<PAGE>
yield than would result from investment in a fund utilizing solely market values
and existing investors would receive less investment income. The converse would
apply in a period of rising interest rates.
Portfolio securities held by the Intermediate Term Government Income
Fund, the Adjustable Rate U.S. Government Securities Fund or the Global Bond
Fund for which market quotations are readily available are generally valued at
their most recent bid prices as obtained from one or more of the major market
makers for such securities. However, certain foreign fixed-income securities are
valued at the last quoted sale price. 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.
The value of non-dollar denominated portfolio instruments held by the
Global Bond Fund will be determined by converting all assets and liabilities
initially expressed in foreign currency values into U.S. dollar values at the
mean between the bid and offered quotations of such currencies against U.S.
dollars as last quoted by any recognized dealer. If such quotations are not
available, the rate of exchange will be determined in accordance with policies
established in good faith by the Board of Trustees. Gains or losses between
trade and settlement dates resulting from changes in exchange rates between the
U.S. dollar and a foreign currency are borne by the Fund. To protect against
such losses, the Fund may enter into forward foreign currency exchange
contracts, which will also have the effect of limiting any such gains.
OTHER PURCHASE INFORMATION
The Prospectus describes generally how to purchase shares of the Funds.
Additional information with respect to certain types of purchases of Class A
shares of the Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund is set forth below.
RIGHT OF ACCUMULATION. A "purchaser" (as defined in the Prospectus) of
Class A shares of the Intermediate Term Government Income Fund, the Adjustable
Rate U.S. Government Securities Fund and the Global Bond Fund has the right to
combine the cost or current net asset value (whichever is higher) of his
existing shares of the load funds distributed by the Adviser with the amount of
his current purchases in order to take advantage of the reduced sales loads set
forth in the tables in the Prospectus. The purchaser or his dealer must notify
MGF Service Corp. that an investment qualifies for a reduced sales load. The
reduced load will be granted upon confirmation of the purchaser's holdings by
MGF Service Corp.
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<PAGE>
LETTER OF INTENT. The reduced sales loads set forth in the tables in
the Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of Class A shares of the Intermediate Term Government Income Fund,
the Adjustable Rate U.S. Government Securities Fund and the Global Bond Fund who
submits a Letter of Intent to MGF Service Corp. The Letter must state an
intention to invest within a thirteen month period in any load fund distributed
by the Adviser a specified amount which, if made at one time, would qualify for
a reduced sales load. A Letter of Intent may be submitted with a purchase at the
beginning of the thirteen month period or within ninety days of the first
purchase under the Letter of Intent. Upon acceptance of this Letter, the
purchaser becomes eligible for the reduced sales load applicable to the level of
investment covered by such Letter of Intent as if the entire amount were
invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Trust to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases
at the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify MGF Service Corp. that an investment is being made
pursuant to an executed Letter of Intent.
OTHER INFORMATION. The Trust does not impose a front-end sales load or
imposes a reduced sales load in connection with purchases of Class A shares of
the Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund made under the reinvestment
privilege or the purchases described in the "Reduced Sales Load," "Purchases at
Net Asset Value" or "Exchange Privilege" sections in the Prospectus because such
purchases require minimal sales effort by the Adviser. Purchases described in
the "Purchases at Net Asset Value" section may be made for investment only, and
the shares may not be resold except through redemption by or on behalf of the
Trust.
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<PAGE>
TAXES
The Prospectus describes generally the tax treatment of distributions
by the Funds. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
Each Fund has qualified and 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 a 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).
A 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. As of September 30, 1996, the Intermediate Term
Government Income Fund, the Institutional Government Income Fund and the
Adjustable Rate U.S. Government Securities Fund had capital loss carryforwards
for federal income tax purposes of $2,899,292, $24,902 and $1,249,150,
respectively, none of which expire until at least September 30, 2001.
Investments by the Global Bond Fund in certain options, futures
contracts and options on futures contracts are "section 1256 contracts." Any
gains or losses on section 1256 contracts are generally considered 60% long-term
and 40% short-term capital gains or losses ("60/40"). Section 1256 contracts
held by the
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<PAGE>
Fund at the end of each taxable year are treated for federal income tax purposes
as being sold on such date for their fair market value. The resultant paper
gains or losses are also treated as 60/40 gains or losses. When the section 1256
contract is subsequently disposed of, the actual gain or loss will be adjusted
by the amount of any preceding year-end gain or loss. The use of section 1256
contracts may force the Fund to distribute to shareholders paper gains that have
not yet been realized in order to avoid federal income tax liability.
Foreign currency gains or losses on non-U.S. dollar denominated bonds
and other similar debt instruments and on any non-U.S. dollar denominated
futures contracts, options and forward contracts that are not section 1256
contracts generally will be treated as ordinary income or loss.
Certain hedging transactions undertaken by the Global Bond Fund may
result in "straddles" for federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred, rather than being taken into account in calculating taxable income for
the taxable year in which such losses are realized. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences of hedging transactions to the Fund are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by the Fund which is taxed as ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available under the Internal
Revenue Code of 1986, as amended, which are applicable to straddles. If the Fund
makes any of the elections, the amount, character and timing of the recognition
of gains or losses from the affected straddle positions will be determined under
rules that vary according to the elections made. The rules applicable under
certain of the elections operate to accelerate the recognition of gains or
losses from the affected straddle positions. Because application of the straddle
rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to shareholders, and which will
be taxed to shareholders as ordinary income or long-term capital gain in any
year, may be increased or decreased substantially as compared to a fund that did
not engage in such hedging transactions.
The 30% limit on gains from the sale of certain assets held for less
than three months and the diversification requirements applicable to the Global
Bond Fund's assets may limit the extent to which the Fund will be able to engage
in transactions in options, futures contracts or options on futures contracts.
The Global Bond Fund may be subject to a tax on interest
- 45 -
<PAGE>
income received from securities of a non-U.S. issuer withheld by a foreign
country at the source. The United States has entered into tax treaties with many
foreign countries which entitle the Fund to a reduced rate of tax or exemption
from tax on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested
within various countries is not known.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a 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 Funds intend 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 a 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, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each 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
Yield quotations on investments in the Short Term Government Income
Fund and the Institutional Government Income Fund are provided on both a current
and an effective (compounded) basis. Current yields are calculated by
determining the net change in the value of a hypothetical account for a seven
calendar day period (base period) with a beginning balance of one share,
dividing by the value of the account at the beginning of the base period to
obtain the base period return, multiplying the result by (365/7) and carrying
the resulting yield figure to the nearest hundredth of one percent. Effective
yields reflect daily
- 46 -
<PAGE>
compounding and are calculated as follows: Effective yield = (base period return
+ 1)365/7 -1. For purposes of these calculations, no effect is given to realized
or unrealized gains or losses (the Short Term Government Income Fund and the
Institutional Government Income Fund do not normally recognize unrealized gains
and losses under the amortized cost valuation method). The Short Term Government
Income Fund's current and effective yields for the seven days ended September
30, 1996 were 4.39% and 4.49%, respectively. The Institutional Government Income
Fund's current and effective yields for the seven days ended September 30, 1996
were 5.00% and 5.12%, respectively.
From time to time, the Intermediate Term Government Income Fund, the
Adjustable Rate U.S. Government Securities Fund and the Global Bond 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. The calculation also assumes the deduction of the
current maximum sales load from the initial $1,000 payment and the deduction of
the current maximum contingent deferred sales load, at the times, in the
amounts, and under the terms disclosed in the Prospectus. If a Fund (or class)
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 average annual total returns of the Intermediate Term
Government Income Fund, the Adjustable Rate U.S. Government Securities Fund and
the Global Bond Fund for the periods ended September 30, 1996 are as follows:
Intermediate Term Government Income Fund (Class A)
1 Year 1.47%
5 Years 5.84%
10 Years 6.55%
Intermediate Term Government Income Fund (Class C)
1 Year 3.03%
Since Inception (February 1, 1994) 2.67%
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<PAGE>
Adjustable Rate U.S. Government Securities Fund (Class A)
1 Year 4.19%
Since Inception (February 10, 1993) 3.99%
Adjustable Rate U.S. Government Securities Fund (Class C)
1 Year 5.77%
Since Inception (May 1, 1995) 5.85%
Global Bond Fund (Class A)
1 Year 0.68%
Since Inception (February 1, 1995) 6.25%
Global Bond Fund (Class C)
1 Year 4.10%
Since Inception (February 1, 1995) 8.16%
The Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond 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.
This computation does not include the effect of the applicable front-end or
contingent deferred sales load which, if included, would reduce total return.
The total returns of the Intermediate Term Government Income Fund ("ITF"), the
Adjustable Rate U.S. Government Securities Fund ("ARM") and the Global Bond Fund
("GBF") as calculated in this manner for each of the last ten fiscal years (or
since inception) are as follows:
ITF ITF ARM ARM GBF GBF
Class A Class C Class A Class C Class A Class C
Period Ended
- ------------
September 30, 1987 0.66%
September 30, 1988 8.77%
September 30, 1989 7.79%
September 30, 1990 5.31%
September 30, 1991 14.19%
September 30, 1992 13.27%
September 30, 1993 10.15% 2.90%(2)
September 30, 1994 -6.76% 2.45%(1) 2.09%
September 30, 1995 12.52% 11.96% 5.33% 2.46%(3) 9.87%(4) 9.45%(4)
September 30, 1996 3.55% 3.03% 6.32% 5.77% 4.88% 4.10%
(1) From date of initial public offering on February 1, 1994
(2) From date of initial public offering on February 10, 1993
(3) From date of initial public offering on May 1, 1995
(4) From date of initial public offering on February 1, 1995
- 48 -
<PAGE>
A nonstandardized quotation may also indicate average annual compounded rates of
return without including the effect of the applicable front-end or contingent
deferred sales load or over periods other than those specified for average
annual total return. The average annual compounded rates of return for the
Intermediate Term Government Income Fund and the Adjustable Rate U.S. Government
Securities Fund (excluding sales loads) for the periods ended September 30, 1996
are as follows:
Intermediate Term Government Income Fund (Class A)
1 Year 3.55%
3 Years 2.80%
5 Years 6.27%
10 Years 6.76%
Since Inception (February 6, 1981) 8.82%
Intermediate Term Government Income Fund (Class C)
1 Year 3.03%
Since Inception (February 1, 1994) 2.67%
Adjustable Rate U.S. Government Securities Fund (Class A)
1 Year 6.32%
3 Years 4.56%
Since Inception (February 10, 1993) 4.57%
Adjustable Rate U.S. Government Securities Fund (Class C)
1 Year 5.77%
Since Inception (May 1, 1995) 5.85%
Global Bond Fund (Class A)
1 Year 4.88%
Since Inception (February 1, 1995) 8.89%
Global Bond Fund (Class C)
1 Year 4.10%
Since Inception (February 1, 1995) 8.16%
A nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
From time to time, the Intermediate Term Government Income Fund, the
Adjustable Rate U.S. Government Securities Fund and the Global Bond Fund may
advertise their 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:
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<PAGE>
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). With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
paydowns of principal and interest, gain or loss attributable to actual monthly
paydowns is accounted for as an increase or decrease to interest income during
the period and discount or premium on the remaining security is not amortized.
The yields of Class A and Class C shares of the Intermediate Term Government
Income Fund for September 1996 were 5.90% and 5.52%, respectively. The yields of
Class A and Class C shares of the Adjustable Rate U.S. Government Securities
Fund for September 1996 were 5.80% and 5.40%, respectively. The yields of Class
A and Class C shares of the Global Bond Fund for September 1996 were 4.86% and
4.40%, respectively.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance. Average annual
total return and yield are computed separately for Class A and Class C shares of
the Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund. The yield of Class A shares
is expected to be higher than the yield of Class C shares due to the higher
distribution fees imposed on Class C shares.
To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding each 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 Funds may use the following
publications or indices to discuss or compare Fund performance:
- 50 -
<PAGE>
Donoghue's Money Fund Report provides a comparative analysis of
performance for various categories of money market funds. The Short Term
Government Income Fund may compare performance rankings with money market funds
appearing in the Taxable U.S. Treasury & Repo Funds category. The Institutional
Government Income Fund may compare performance rankings with money market funds
appearing in the Taxable Government-Only Institutional Funds category.
Donoghue's Bond Fund Report provides a comparative analysis of performance for
various categories of bond funds. The Intermediate Term Government Income Fund
may compare performance rankings with bond funds appearing in the Government
General Intermediate Term category, the Adjustable Rate U.S. Government
Securities Fund may compare performance rankings with bond funds appearing in
the Adjustable Rate Mortgages category and the Global Bond Fund may compare
performance rankings with bond funds appearing in the Global and International
Long-Term category.
Lipper Fixed Income Fund Performance Analysis measures total return and
average current yield for the mutual fund industry and ranks individual mutual
fund performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Short Term Government Income Fund
may provide comparative performance information appearing in the U.S. Government
Money Market Funds category, the Intermediate Term Government Income Fund may
provide comparative performance information appearing in the Intermediate U.S.
Government Funds category, the Institutional Government Income Fund may provide
comparative performance information appearing in the Institutional U.S.
Government Money Market Funds category, the Adjustable Rate U.S. Government
Securities Fund may provide comparative performance information appearing in the
Adjustable Rate Mortgage Funds category and the Global Bond Fund pay provide
comparative performance information appearing in the Global Income 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 Funds' portfolios, 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 Funds to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
- 51 -
<PAGE>
PRINCIPAL SECURITY HOLDERS
As of January 3, 1997, Amivest Corporation, P.O. Box 370 Cooper
Station, New York, New York owned of record 28.11% of the outstanding Class A
shares of the Intermediate Term Government Income Fund and 24.71% of the
outstanding Class A shares of the Adjustable Rate U.S. Government Securities
Fund. Amivest Corporation may be deemed to control the Class A shares of the
Intermediate Term Government Income Fund by virtue of the fact that it owns of
record more than 25% of such shares. As of January 3, 1997, Donaldson, Lufkin &
Jenrette Securities Corporation, P.O. Box 2052, Jersey City, New Jersey owned of
record 31.71% of the outstanding Class C shares of the Adjustable Rate U.S.
Government Securities Fund and NFSC FEBO #A7D-022349 Ros Angela Contracting Co.
Inc., 450 County Road, Cliffwood, New Jersey owned of record 37.87% of the
outstanding Class C shares of the Adjustable Rate U.S. Government Securities
Fund. Donaldson, Lufkin & Jenrette Securities Corporation and Ros Angela
Contracting Co. Inc. may be deemed to control the Class C shares of the
Adjustable Rate U.S. Government Securities Fund by virtue of the fact that each
of owned of record more than 25% of the outstanding shares. For purposes of
voting on matters submitted to shareholders, any person who owns more than 50%
of the outstanding shares of a Fund generally would be able to cast the deciding
vote.
On January 3, 1997, Star Bank, N.A., 425 Walnut Street Mail Location 6120,
Cincinnati, Ohio owned of record 9.04% of the outstanding shares of the
Institutional Government Income Fund; The Fechheimer Brothers Company, 4545
Malsbary Road, Cincinnati, Ohio owned of record 8.47% of the outstanding shares
of the Institutional Government Income Fund; Ann Butler, P.O. Box 157, Frisco,
Texas owned or record 14.42% of the outstanding Class C shares of the
Intermediate Term Government Income Fund; Resources Trust Co. Trust IRA UA
6-9-94 FBO Arthur R. Thigpen, P.O. Box 5900, Denver, Colorado owned or record
7.86% of the outstanding Class C shares of the Intermediate Term Government
Income Fund; Resources Trust Co. Trust IRA UA 1-2-96 FBO Jon L. Layton, P.O. Box
5900, Denver, Colorado owned of record 5.44% of the outstanding Class C shares
of the Intermediate Term Government Income Fund; Thomas B. Ballard, 258
Manchester, Highland Park, Michigan owned of record 5.28% of the outstanding
Class C shares of the Intermediate Term Government Income Fund; Martin S.
Goldfarb, M.D., 919 N. Crescent, Beverly Hills, California owned of record
15.26% of the outstanding Class A shares of the Global Bond Fund; Genova
Investments Corp., Avenida Samuel Lewis Calle 53, Edinficio Omega Mezzanine,
Republic of Panama owned of record 8.46% of the outstanding Class A shares of
the Global Bond Fund; Queen City Urology Associates, Inc., 400 Martin Luther
King Drive, Cincinnati, Ohio owned of record 5.87% of the outstanding Class A
shares of the Global Bond Fund; PaineWebber FBO Tempel Steel Employee Pension
Trust, 5215 Old Orchard Road, Skokie,
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<PAGE>
Illinois owned of record 16.74% of the outstanding Class A shares of the Global
Bond Fund; Gooss & Co., c/o Chase Manhattan Bank, 1211 Sixth Avenue, New York,
New York owned of record 9.22% of the outstanding Class C shares of the Global
Bond Fund; PaineWebber FBO The American Dietetic Association, 216 W. Jackson
Boulevard, Chicago, Illinois owned of record 8.23% of the outstanding Class C
shares of the Global Bond Fund; and PaineWebber FBO The Florence & Co. Trust
Account #2 Timothy Sheffield, Charles J., 11713 NE 99th Street, Vancouver,
Washington owned of record 8.09% of the outstanding Class C shares of the Global
Bond Fund.
As of January 3, 1997, the Trustees and officers of the Trust as a
group owned of record and beneficially 2.10% of the outstanding shares of the
Short Term Government Income Fund, 1.79% of the outstanding Class A shares of
the Global Bond Fund and less than 1% of the outstanding shares of the Trust and
of each other Fund (or Class thereof).
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has
been retained to act as Custodian for the investments of the Short Term
Government Income Fund, the Intermediate Term Government Income Fund, the
Institutional Government Income Fund and the Adjustable Rate U.S. Government
Securities Fund. The Fifth Third Bank acts as each 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 each Fund a base
fee at the annual rate of .005% of average net assets (subject to a minimum
annual fee of $1,500 per Fund and a maximum fee of $5,000 per Fund) plus
transaction charges for each security transaction of the Funds.
The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois,
has been retained to act as Custodian for the Global Bond Fund's investments.
The Northern Trust Company acts as the Fund's depository, safekeeps its
portfolio securities, collects all income and other payments with respect
thereto, disburses funds as instructed and maintains records in connection with
its duties.
AUDITORS
The firm of Arthur Andersen LLP has been selected as independent
auditors for the Trust for the fiscal year ending September 30, 1997. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Funds as to certain accounting
matters.
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<PAGE>
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 Funds'
shares, acts as dividend and distribution disbursing agent and performs other
shareholder service functions. MGF is an affiliate of the Adviser by reason of
common ownership. MGF receives for its services as transfer agent a fee payable
monthly at an annual rate of $25 per account from each of the Short Term
Government Income Fund and the Institutional Government Income Fund and $21 per
account from the Intermediate Term Government Income Fund, the Adjustable Rate
U.S. Government Securities Fund and the Global Bond Fund, provided, however,
that the minimum fee is $1,000 per month for each class of shares of a Fund. In
addition, the Funds pay 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 Short Term
Government Income Fund and the Institutional Government Income Fund each pay MGF
a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $100,000,000 $3,000
$100,000,000 - $250,000,000 $3,500
$250,000,000 - $400,000,000 $4,000
Over $400,000,000 $4,500
The Intermediate Term Government Income Fund pays MGF a fee in accordance with
the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $3,750
$ 50,000,000 - $100,000,000 $4,250
$100,000,000 - $250,000,000 $4,750
Over $250,000,000 $5,250
The Adjustable Rate U.S. Government Securities Fund pays MGF a
fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $4,250
$ 50,000,000 - $100,000,000 $4,750
$100,000,000 - $250,000,000 $5,250
Over $250,000,000 $5,750
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<PAGE>
The Global Bond Fund pays MGF a fee in accordance with the following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $4,750
$ 50,000,000 - $100,000,000 $5,250
$100,000,000 - $250,000,000 $5,750
Over $250,000,000 $6,750
In addition, each Fund pays all costs of external pricing services.
MGF is retained by the Adviser to assist the Adviser in providing
administrative services to the Funds. 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 Funds, 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 .1% of the average value of each Fund's daily net assets. 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.
ANNUAL REPORT
The Funds' financial statements as of September 30, 1996 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
- 55 -
ANNUAL
REPORT
SEPTEMBER 30, 1996
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>
MANAGEMENT DISCUSSION AND ANALYSIS
INTERMEDIATE TERM GOVERNMENT INCOME FUND
==============================================================================
The fiscal year ended September 30, 1996 was a difficult year for the
fixed-income markets with interest rates generally moving higher. The
benchmark 30-year Treasury bond began the fiscal year yielding 6.47% and ended
the year yielding 6.92%. During the quarter ended December 31, 1995, the
market found tremendous support in constructive budget negotiations between
the Republican Congress and the Clinton Presidency. At the time, it appeared
that a budget resolution would be reached, paving the way for the Federal
Reserve Board to lower interest rates. The market was also aided by a
softening economy and muted inflationary pressures. The yield on the 30-year
Treasury bond reached a low of 5.95% in January 1996.
The next two quarters proved difficult beginning with the budget impasse and
the partial shutdown of the U.S. government in the latter part of January.
Market sentiment worsened, exacerbated by accelerating economic activity.
Gross domestic product climbed to a torrid 4.7% growth rate for the quarter
ended June 30, 1996, well in excess of the economy's long-term potential
growth rate of around 2.5%. The Federal Reserve's bias changed from "easy
money" to "tight money" with many investors wondering when, not if, interest
rates would be raised. Long-term rates peaked in mid-June at 7.20%, then
traded within a well-defined range through fiscal year-end as investors
grappled with questions concerning the strength of the economy and the
potential for inflation. For the twelve months ended September 30, 1996, the
Lehman Brothers Intermediate Government Bond Index returned 5.10%.
The Intermediate Term Government Income Fund, positioned for an advancing
market, performed well through January 1996. However, when market interest
rates abruptly changed direction in February, the Fund suffered a loss of
principal. The Fund underperformed the Lehman Brothers Intermediate Government
Bond Index during the downturn due to its higher duration and convexity
characteristics. Management responded by repositioning the portfolio to take
advantage of the higher interest rate environment. By purchasing callable
bonds with good call protection, the Fund was able to increase its yield while
maintaining better-than-average upside potential. This allowed the Fund to
outperform the Index in the latter part of the fiscal year as interest rates
began trending lower. For the fiscal year ended September 30, 1996, the Fund's
total returns (excluding the impact of applicable sales loads) were 3.55% and
3.03% for Class A shares and Class C shares, respectively.
Our outlook for the next several months remains constructive. Economic
activity appears to be moderating and inflation is nominal -- a boon to bonds.
While the economy may rebound somewhat during the holiday season, our
longer-term outlook is for economic growth at, or near, the economy's
long-term potential. Management has worked to improve the call protection in
the Fund and slightly extend the effective duration which should enhance
performance in a lower interest rate environment. The portfolio remains over
50% invested in callable bonds to provide protection in the event rates move
higher.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
INTERMEDIATE TERM GOVERNMENT INCOME FUND* AND THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT BOND INDEX
<TABLE>
LEHMAN BROTHERS INTERMEDIATE GOVT BOND INDEX: INTERMED TERM GOVT INCOME FUND - CLASS A:
<CAPTION>
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
09/30/86 10,000 09/30/86 9,800
12/31/86 2.49% 10,249 12/31/86 2.35% 10,030
03/31/87 1.18% 10,370 03/31/87 0.84% 10,114
06/30/87 -0.83% 10,284 06/30/87 -1.32% 9,981
09/30/87 -1.29% 10,151 09/30/87 -1.17% 9,864
12/31/87 4.60% 10,618 12/31/87 3.91% 10,250
03/31/88 3.13% 10,951 03/31/88 2.50% 10,507
06/30/88 0.97% 11,057 06/30/88 0.47% 10,556
09/30/88 1.56% 11,229 09/30/88 1.64% 10,730
12/31/88 0.60% 11,297 12/31/88 0.27% 10,758
03/31/89 1.04% 11,414 03/31/89 1.05% 10,871
06/30/89 6.64% 12,172 06/30/89 5.40% 11,458
09/30/89 1.13% 12,310 09/30/89 0.93% 11,565
12/31/89 3.41% 12,729 12/31/89 2.88% 11,899
03/31/90 -0.14% 12,711 03/31/90 -1.32% 11,742
06/30/90 3.14% 13,111 06/30/90 2.77% 12,067
09/30/90 1.94% 13,365 09/30/90 0.93% 12,180
12/31/90 4.34% 13,945 12/31/90 4.51% 12,729
03/31/91 2.20% 14,252 03/31/91 1.93% 12,975
06/30/91 1.69% 14,493 06/30/91 1.25% 13,136
09/30/91 4.75% 15,181 09/30/91 5.87% 13,908
12/31/91 4.82% 15,913 12/31/91 5.33% 14,650
03/31/92 -1.05% 15,746 03/31/92 -2.24% 14,321
06/30/92 3.88% 16,357 06/30/92 4.25% 14,931
09/30/92 4.38% 17,073 09/30/92 5.51% 15,754
12/31/92 -0.34% 17,015 12/31/92 -0.87% 15,616
03/31/93 3.74% 17,651 03/31/93 5.09% 16,411
06/30/93 1.96% 17,997 06/30/93 2.76% 16,863
09/30/93 2.11% 18,377 09/30/93 2.90% 17,353
12/31/93 0.15% 18,405 12/31/93 -0.71% 17,230
03/31/94 -1.85% 18,064 03/31/94 -4.07% 16,529
06/30/94 -0.56% 17,963 06/30/94 -1.88% 16,219
09/30/94 0.77% 18,101 09/30/94 -0.24% 16,180
12/31/94 -0.10% 18,083 12/31/94 -0.23% 16,143
03/31/95 4.16% 18,835 03/31/95 5.14% 16,973
06/30/95 4.67% 19,715 06/30/95 5.95% 17,983
09/30/95 1.55% 20,021 09/30/95 1.24% 18,206
12/31/95 3.34% 20,689 12/31/95 3.63% 18,866
03/31/96 -0.68% 20,549 03/31/96 -2.02% 18,484
06/30/96 0.67% 20,686 06/30/96 0.11% 18,504
09/30/96 1.72% 21,042 09/30/96 1.87% 18,851
</TABLE>
Intermediate Term Government Income Fund
Average Annual Total Returns
1 Year 5 Years 10 Years Since Inception
Class A 1.47% 5.84% 6.55% 8.68%
Class C 3.03% N/A N/A 2.67%
Past performance is not predictive of future performance.
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and fees
paid by shareholders in the different classes. The initial public offering of
Class A shares commenced on February 6, 1981, and the initial public offering
of Class C shares commenced on February 1, 1994.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND
==============================================================================
The fixed-income markets exhibited a high degree of volatility in the fiscal
year ended September 30, 1996, almost completing a "mini" interest rate cycle.
The year began with a positive tone as Congress and the President appeared to
be nearing agreement on the national budget. This constructive fiscal
backdrop, along with a moderating economy and muted inflation, allowed
interest rates to move lower through the quarter ended December 31, 1995. The
Federal Reserve Board, fearing sluggish economic growth, lowered short-term
interest rates twice, by .25% in December 1995 and by an additional .25% in
January 1996. Short-term rates bottomed-out two weeks later with the 1-year
Treasury bill yielding 4.78%.
February marked a turning point in investor psychology as Congress and the
President failed to reach agreement on the federal budget resulting in a
partial shutdown of the U.S. government. This, combined with a revitalized
economy, sent bond yields sharply higher. Spreads between interest rates on
short-term and long-term Treasuries widened quickly, diminishing the incentive
for mortgage holders to refinance out of adjustable rate mortgages (ARMs) and
into fixed rate mortgages. The resulting slowdown in ARM prepayments allowed
yield spreads to tighten versus U.S. Treasury securities. ARM securities
traded in a relatively narrow range for the rest of the fiscal year,
maintaining tight yield spreads relative to Treasuries. For the twelve months
ended September 30, 1996, the Lehman Brothers ARM Index returned 6.50%.
The Adjustable Rate U.S. Government Securities Fund invests primarily in ARM
securities which are fully-indexed to the 1-year Constant Maturity Treasury
(CMT). These generally conservative bonds exhibit very stable prepayment
patterns. The prepayment profile, combined with the adjustable coupon, allows
the fully-indexed ARM security to maintain an above average degree of price
stability. When short-term interest rates moved higher after January 1996,
fully-indexed, 1-year CMT ARMs actually increased in value as investors sought
refuge in short-duration, mortgage-backed securities with stable prepayment
patterns. Valuations on these securities remained attractive through fiscal
year-end. As a result, the Fund was able to achieve total returns comparable
to the Lehman Brothers ARM Index, but with considerably less volatility and
risk. For the fiscal year ended September 30, 1996, the Fund's total returns
(excluding the impact of applicable sales loads) were 6.32% and 5.77% for
Class A shares and Class C shares, respectively.
The Fund currently intends to continue to invest in fully-indexed, 1-year CMT
ARM securities in an effort to maintain a relatively stable net asset value.
Fund management believes that short-term Treasury securities are currently
fully valued in relation to economic fundamentals and that the Federal Reserve
Board is likely to leave short-term interest rates unchanged for the
foreseeable future. We will continue to pursue a conservative strategy for the
Fund, attempting to maximize current yield while minimizing principal
fluctuation.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE ADJUSTABLE
RATE U.S. GOVERNMENT SECURITIES FUND* AND THE LEHMAN BROTHERS ARM INDEX
<TABLE>
LEHMAN BROTHERS ARM INDEX: ADJUSTABLE RATE U.S. GOVT SEC FUND - CLASS A:
<CAPTION>
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
02/28/93 10,000 02/28/93 9,800
03/31/93 0.45% 10,045 03/31/93 0.63% 9,862
06/30/93 1.90% 10,236 06/30/93 1.19% 9,980
09/30/93 1.06% 10,345 09/30/93 1.04% 10,084
12/31/93 0.52% 10,398 12/31/93 0.95% 10,180
03/31/94 -0.44% 10,353 03/31/94 0.62% 10,242
06/30/94 -0.39% 10,312 06/30/94 0.32% 10,276
09/30/94 0.69% 10,383 09/30/94 0.19% 10,295
12/31/94 0.15% 10,399 12/31/94 -0.63% 10,230
03/31/95 4.20% 10,836 03/31/95 2.48% 10,484
06/30/95 3.12% 11,174 06/30/95 2.01% 10,695
09/30/95 1.69% 11,363 09/30/95 1.39% 10,844
12/31/95 2.25% 11,618 12/31/95 1.73% 11,032
03/31/96 1.10% 11,746 03/31/96 1.67% 11,216
06/30/96 1.13% 11,879 06/30/96 1.24% 11,355
09/30/96 1.87% 12,102 09/30/96 1.53% 11,529
</TABLE>
Past performance is not predictive of future performance.
Adjustable Rate U.S. Government Securities Fund
Average Annual Total Returns
1 Year Since Inception
Class A 4.19% 3.99%
Class C 5.77% 5.85%
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and
fees paid by shareholders in the different classes. The initial public offering
of Class A shares commenced on February 10, 1993, and the initial public
offering of Class C shares commenced on May 1, 1995.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
GLOBAL BOND FUND
==============================================================================
The Global Bond Fund seeks high total return, through both income and capital
appreciation. The Fund invests primarily in high-grade domestic and foreign
fixed-income securities geographically concentrated in Australia, Belgium,
Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain,
Sweden, the United Kingdom and the United States. The Fund may also invest up
to ten percent of its total assets in global bonds issued in emerging markets.
For the fiscal year ended September 30, 1996, the Fund's total returns
(excluding the impact of applicable sales loads) were 4.88% and 4.10% for
Class A shares and Class C shares, respectively. The Salomon Brothers World
Government Bond Index returned 4.20% during this same period.
Management of the Fund uses an active country/currency allocation in liquid
markets, based on a process of relative value analysis across countries. Focus
is placed on financially healthy countries which management believes have the
potential to produce the highest bond and currency returns on a relative
basis. Careful analysis is made of each country's savings rate, monetary
growth, monetary authorities, fiscal policy and political climate. Optimal
country weightings are then assigned based upon twelve month expectations of
investor confidence and market outlook. The Fund also utilizes various hedging
techniques to reduce short-term volatility resulting from currency exchange
rate fluctuations.
Country selections during the fiscal year generally had a positive impact on
performance relative to the Salomon Brothers World Government Bond Index, as
the Fund was comparatively overweighted in strong markets such as Italy (the
best performing market for the period) and Denmark, while it was comparatively
underweighted in weaker markets including Japan and the U.S. Although
underweighted in U.S. bonds, the Fund typically maintained a neutral currency
position relative to the U.S. dollar and was not hurt by the dollar's rise.
The portfolio's duration position was generally longer than that of the Index
and tended to benefit the Fund, although it did have a negative impact for the
quarter ended March 31, 1996, when bond returns were weak.
Looking forward, management continues to see opportunity in the global bond
markets. Inflation remains subdued globally, which is allowing real interest
rates to come down further. We think that this process can continue given the
tight fiscal policies which are in place throughout Europe and the dollar
block. Monetary policy as well seems relatively tight given the moderate pace
of economic expansion seen in the global economy. Japan remains the least
attractive environment for investment due to its overly loose monetary and
fiscal policies.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GLOBAL
BOND FUND* AND THE SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX
<TABLE>
SALOMON BROTHERS WORLD GLOBAL BOND FUND - CLASS A:
GOVERNMENT BOND INDEX:
<CAPTION>
MONTHLY MONTHLY
DATE RETURN BALANCE DATE RETURN BALANCE
<S> <C> <C> <C> <C> <C>
02/01/95 10,000 02/01/95 9,600
02/28/95 2.56% 10,256 02/28/95 2.00% 9,792
03/31/95 5.94% 10,865 03/31/95 6.47% 10,426
04/30/95 1.85% 11,066 04/30/95 1.30% 10,562
05/31/95 2.81% 11,377 05/31/95 1.93% 10,765
06/30/95 0.59% 11,444 06/30/95 -0.09% 10,756
07/31/95 0.24% 11,472 07/31/95 0.00% 10,756
08/31/95 -3.44% 11,077 08/31/95 -3.41% 10,389
09/30/95 2.23% 11,324 09/30/95 1.53% 10,547
10/31/95 0.75% 11,409 10/31/95 0.94% 10,647
11/30/95 1.13% 11,538 11/30/95 1.12% 10,766
12/31/95 1.05% 11,658 12/31/95 1.91% 10,972
01/31/96 -1.24% 11,514 01/31/96 -0.73% 10,891
02/29/96 -0.51% 11,456 02/29/96 -1.66% 10,711
03/31/96 -0.14% 11,440 03/31/96 -1.03% 10,600
04/30/96 -0.40% 11,394 04/30/96 0.95% 10,701
05/31/96 0.02% 11,397 05/31/96 -0.47% 10,651
06/30/96 0.79% 11,486 06/30/96 0.66% 10,721
07/31/96 1.92% 11,706 07/31/96 1.96% 10,931
08/31/96 0.39% 11,752 08/31/96 0.09% 10,941
09/30/96 0.41% 11,800 09/30/96 1.10% 11,062
</TABLE>
Past performance is not predictive of future performance.
Global Bond Fund
Average Annual Total Returns
1 Year Since Inception
Class A 0.68% 6.25%
Class C 4.10% 8.16%
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class C shares based on the difference in loads and
fees paid by shareholders in the different classes. The initial public
offering of Class A shares and Class C shares each commenced on February 1,
1995.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
===================================================================================================================
MONEY MARKET FUNDS
===================================================================================================================
SHORT TERM INSTITUTIONAL
GOVERNMENT GOVERNMENT
INCOME FUND INCOME FUND
===================================================================================================================
<S> <C> <C>
ASSETS
Investments in securities:
At acquisition cost................................................... $ 50,749,465 $ 23,166,922
============== ===============
At amortized cost..................................................... $ 50,871,866 $ 23,213,713
============== ===============
At value (Note 2) .................................................... $ 50,871,866 $ 23,213,713
Investments in repurchase agreements (Note 2)............................ 40,278,000 15,957,000
Cash .................................................................... 329 54
Interest receivable...................................................... 374,341 231,551
-------------- ---------------
TOTAL ASSETS.......................................................... 91,524,536 39,402,318
-------------- ---------------
LIABILITIES
Dividends payable........................................................ 5,758 9,480
Payable to affiliates (Note 4)........................................... 67,634 4,150
Other accrued expenses and liabilities................................... 11,660 6,624
-------------- ---------------
TOTAL LIABILITIES .................................................... 85,052 20,254
-------------- ---------------
NET ASSETS ............................................................. $ 91,439,484 $ 39,382,064
============== ===============
Net assets consist of:
Capital shares........................................................... $ 91,436,514 $ 39,406,966
Accumulated net realized gains (losses) from security transactions ...... 2,970 (24,902)
-------------- ---------------
Net assets .............................................................. $ 91,439,484 $ 39,382,064
============== ===============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value) (Note 5) ................................... 91,436,514 39,406,966
============== ===============
Net asset value, offering price and redemption price per share (Note 2) . $ 1.00 $ 1.00
============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
===================================================================================================================
GOVERNMENT BOND FUNDS
===================================================================================================================
ADJUSTABLE
INTERMEDIATE RATE U.S.
TERM GOVERNMENT
GOVERNMENT SECURITIES
INCOME FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities:
At acquisition cost................................................... $ 55,565,058 $ 11,382,080
============== ===============
At amortized cost .................................................... $ 55,534,106 $ 11,382,080
============== ===============
At value (Note 2) .................................................... $ 55,744,810 $ 11,506,681
Investments in repurchase agreements (Note 2)............................ 226,000 769,000
Cash .................................................................... 756 35
Interest receivable ..................................................... 1,004,718 96,700
Receivable for capital shares sold....................................... 35,498 10,137
Receivable for principal paydowns........................................ -- 62,507
Receivable from Adviser (Note 4)......................................... -- 3,106
Other assets............................................................. 1,194 6,910
-------------- ---------------
TOTAL ASSETS ......................................................... 57,012,976 12,455,076
-------------- ---------------
LIABILITIES
Dividends payable ....................................................... 28,745 4,468
Payable for capital shares redeemed ..................................... 67,151 75,863
Payable to affiliates (Note 4) .......................................... 37,907 6,400
Other accrued expenses and liabilities................................... 13,230 7,900
-------------- ---------------
TOTAL LIABILITIES .................................................... 147,033 94,631
-------------- ---------------
NET ASSETS ............................................................. $ 56,865,943 $ 12,360,445
============== ===============
Net assets consist of:
Capital shares .......................................................... $ 59,554,531 $ 13,484,994
Accumulated net realized losses from security transactions............... (2,899,292) (1,249,150)
Net unrealized appreciation on investments .............................. 210,704 124,601
-------------- ---------------
Net assets .............................................................. $ 56,865,943 $ 12,360,445
============== ===============
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ............................... $ 56,094,893 $ 11,731,582
============== ===============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) (Note 5) .................. 5,348,350 1,195,580
============== ===============
Net asset value and redemption price per share (Note 2).................. $ 10.49 $ 9.81
============== ===============
Maximum offering price per share (Note 2) ............................... $ 10.70 $ 10.01
============== ===============
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ............................... $ 771,050 $ 628,863
============== ===============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) (Note 5)................... 73,518 64,117
============== ===============
Net asset value, offering price and redemption price per share (Note 2).. $ 10.49 $ 9.81
============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
===================================================================================================================
GLOBAL BOND
FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities:
At acquisition cost...................................................................... $ 17,784,437
===============
At amortized cost ....................................................................... $ 17,784,437
===============
At value (Note 2) ....................................................................... $ 18,110,218
Cash ....................................................................................... 352,228
Interest receivable ........................................................................ 482,777
Receivable for capital shares sold.......................................................... 555
Receivable for securities sold.............................................................. 1,715,712
Other assets................................................................................ 2,032
---------------
TOTAL ASSETS ............................................................................ 20,663,522
---------------
LIABILITIES
Payable for securities purchased............................................................ 1,874,374
Payable for capital shares redeemed......................................................... 57,997
Payable to affiliates (Note 4) ............................................................. 19,059
Net unrealized depreciation on forward foreign currency exchange contracts (Note 7)......... 7,656
Other accrued expenses and liabilities...................................................... 15,743
---------------
TOTAL LIABILITIES ....................................................................... 1,974,829
---------------
NET ASSETS ................................................................................ $ 18,688,693
===============
Net assets consist of:
Capital shares ............................................................................. $ 17,929,671
Undistributed net investment income......................................................... 287,907
Accumulated net realized gains from security and foreign currency transactions ............. 155,206
Net unrealized appreciation on investments ................................................. 325,781
Net unrealized depreciation on translation of assets and liabilities in foreign currencies.. (9,872)
---------------
Net assets ................................................................................. $ 18,688,693
===============
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares .................................................. $ 12,841,443
===============
Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) (Note 5)................................................. 1,164,325
===============
Net asset value and redemption price per share (Note 2)..................................... $ 11.03
===============
Maximum offering price per share (Note 2) .................................................. $ 11.49
===============
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares .................................................. $ 5,847,250
===============
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value) (Note 5)....................................................... 535,423
===============
Net asset value, offering price and redemption price per share (Note 2)..................... $ 10.92
===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 1996
===================================================================================================================
MONEY MARKET FUNDS
===================================================================================================================
SHORT TERM INSTITUTIONAL
GOVERNMENT GOVERNMENT
INCOME FUND INCOME FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest income ...................................................... $ 4,741,604 $ 1,931,042
-------------- ---------------
EXPENSES
Investment advisory fees (Note 4) .................................... 419,926 70,752
Transfer agent fees (Note 4) ......................................... 183,219 12,862
Distribution expenses (Note 4)........................................ 93,521 2,655
Accounting services fees (Note 4)..................................... 36,000 36,000
Postage and supplies.................................................. 56,667 13,798
Custodian fees ....................................................... 19,169 11,206
Registration fees..................................................... 19,036 7,959
Professional fees .................................................... 11,074 7,074
Insurance expense..................................................... 9,036 4,892
Reports to shareholders .............................................. 11,753 692
Trustees' fees and expenses .......................................... 4,101 4,101
Other expenses ....................................................... 5,333 2,320
-------------- ---------------
TOTAL EXPENSES...................................................... 868,835 174,311
Fees waived by the Adviser (Note 4) .................................. -- (32,783)
-------------- ---------------
NET EXPENSES........................................................ 868,835 141,528
-------------- ---------------
NET INVESTMENT INCOME ................................................... 3,872,769 1,789,514
-------------- ---------------
NET REALIZED GAINS FROM SECURITY TRANSACTIONS .......................... 2,970 3,538
-------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................. $ 3,875,739 $ 1,793,052
============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year Ended September 30, 1996
===================================================================================================================
GOVERNMENT BOND FUNDS
===================================================================================================================
ADJUSTABLE
INTERMEDIATE RATE U.S.
TERM GOVERNMENT
GOVERNMENT SECURITIES
INCOME FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest income ...................................................... $ 3,962,313 $ 1,062,482
-------------- ---------------
EXPENSES
Investment advisory fees (Note 4)..................................... 289,680 79,927
Distribution expenses, Class A (Note 4)............................... 93,442 17,500
Distribution expenses, Class C (Note 4)............................... 40 19
Accounting services fees (Note 4)..................................... 51,000 51,000
Transfer agent fees, Class A (Note 4)................................. 52,558 14,221
Transfer agent fees, Class C (Note 4)................................. 12,000 12,000
Postage and supplies.................................................. 38,476 13,286
Registration fees, Common............................................. 4,383 5,268
Registration fees, Class A............................................ 8,167 5,002
Registration fees, Class C............................................ 3,674 1,445
Professional fees..................................................... 13,199 8,605
Standard & Poor's rating expense...................................... -- 20,500
Custodian fees........................................................ 8,123 6,642
Insurance expense..................................................... 6,699 3,160
Trustees' fees and expenses........................................... 4,101 4,101
Reports to shareholders............................................... 4,748 1,371
Other expenses........................................................ 5,817 2,317
-------------- ---------------
TOTAL EXPENSES...................................................... 596,107 246,364
Fees waived and/or expenses reimbursed by the Adviser (Note 4)........ (10,334) (125,377)
-------------- ---------------
NET EXPENSES........................................................ 585,773 120,987
-------------- ---------------
NET INVESTMENT INCOME ................................................... 3,376,540 941,495
-------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions ........................ 295,706 72,164
Net change in unrealized appreciation/depreciation on investments .... (1,807,714) (24,764)
-------------- ---------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS .............. (1,512,008) 47,400
-------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................. $ 1,864,532 $ 988,895
============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1996
===================================================================================================================
GLOBAL BOND
FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest income (net of foreign withholding taxes of $24,233) ........................... $ 1,239,101
---------------
EXPENSES
Investment advisory fees (Note 4)........................................................ 137,065
Accounting services fees (Note 4)........................................................ 57,000
Custodian fees........................................................................... 36,940
Distribution expenses, Class A (Note 4).................................................. 4,709
Distribution expenses, Class C (Note 4).................................................. 24,181
Transfer agent fees, Class A (Note 4).................................................... 12,000
Transfer agent fees, Class C (Note 4).................................................... 12,000
Registration fees, Common................................................................ 3,794
Registration fees, Class A............................................................... 4,469
Registration fees, Class C............................................................... 2,469
Professional fees........................................................................ 9,474
Postage and supplies..................................................................... 6,406
Trustees' fees and expenses.............................................................. 4,101
Insurance expense........................................................................ 2,793
Reports to shareholders.................................................................. 1,128
Other expenses........................................................................... 5,802
---------------
TOTAL EXPENSES......................................................................... 324,331
Fees waived and expenses reimbursed by the Adviser (Note 4).............................. (23,104)
---------------
NET EXPENSES........................................................................... 301,227
---------------
NET INVESTMENT INCOME ...................................................................... 937,874
---------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCY (NOTE 6)
Net realized losses from:
Security transactions ................................................................. (93,933)
Foreign currency transactions.......................................................... (235,290)
Net change in unrealized appreciation/depreciation on:
Investments ........................................................................... 161,908
Translation of assets and liabilities in foreign currencies............................ 57,520
---------------
NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENTS AND FOREIGN CURRENCY ................... (109,795)
---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................................................ $ 828,079
===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1996 and 1995
===================================================================================================================
MONEY MARKET FUNDS
===================================================================================================================
SHORT TERM INSTITUTIONAL
GOVERNMENT GOVERNMENT
INCOME FUND INCOME FUND
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income....................... $ 3,872,769 $ 3,888,736 $ 1,789,514 $ 2,286,308
Net realized gains from security transactions 2,970 2,227 3,538 4,844
------------ -------------- ------------- --------------
Net increase in net assets from operations..... 3,875,739 3,890,963 1,793,052 2,291,152
------------ -------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................. (3,872,769) (3,888,736) (1,789,514) (2,286,308)
From net realized gains from security
transactions.............................. (2,227) (4,105) -- --
------------ -------------- ------------- --------------
Decrease in net assets from distributions to
shareholders............................... (3,874,996) (3,892,841) (1,789,514) (2,286,308)
------------ -------------- ------------- --------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold .................. 290,338,196 306,531,676 171,325,558 152,663,812
Net asset value of shares issued in
reinvestment of distributions to
shareholders 3,711,242 3,627,273 1,548,806 1,869,015
Payments for shares redeemed................ (289,751,833) (312,723,860) (169,504,468) (160,298,008)
------------ -------------- ------------- --------------
Net increase (decrease) in net assets from
capital share transactions.................. 4,297,605 (2,564,911) 3,369,896 (5,765,181)
------------ -------------- ------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ..... 4,298,348 (2,566,789) 3,373,434 (5,760,337)
NET ASSETS:
Beginning of year........................... 87,141,136 89,707,925 36,008,630 41,768,967
------------ -------------- ------------- --------------
End of year................................. $ 91,439,484 $ 87,141,136 $39,382,064 $36,008,630
============ ============== ============= ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1996 and 1995
===================================================================================================================
GOVERNMENT BOND FUNDS
===================================================================================================================
INTERMEDIATE TERM ADJUSTABLE RATE
GOVERNMENT U.S. GOVERNMENT
INCOME FUND SECURITIES FUND
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income ...................... $ 3,376,540 $ 3,691,139 $ 941,495 $ 1,249,966
Net realized gains (losses) from
security transactions 295,706 (932,473) 72,164 (997,493)
Net change in unrealized
appreciation/depreciation on investments.. (1,807,714) 4,287,039 (24,764) 743,284
------------ -------------- ------------- --------------
Net increase in net assets from operations .... 1,864,532 7,045,705 988,895 995,757
------------ -------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A ........ (3,339,635) (3,660,758) (930,066) (1,250,247)
From net investment income, Class C ........ (36,905) (30,381) (11,429) (1,540)
------------ -------------- ------------- --------------
Decrease in net assets from distributions
to shareholders (3,376,540) (3,691,139) (941,495) (1,251,787)
------------ -------------- ------------- --------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold .................. 19,564,015 13,539,608 12,919,191 17,065,780
Net asset value of shares issued in
reinvestment of distributions
to shareholders 2,911,115 3,085,214 816,771 1,122,368
Payments for shares redeemed ............... (21,856,049) (27,372,364) (22,803,135) (34,751,708)
------------ -------------- ------------- --------------
Net increase (decrease) in net assets
from Class A share transactions ............ 619,081 (10,747,542) (9,067,173 (16,563,560)
------------ -------------- ------------- -----------
CLASS C
Proceeds from shares sold .................. 384,845 438,070 617,534 85,878
Net asset value of shares issued in
reinvestment of distributions
to shareholders 35,459 29,534 8,075 1,510
Payments for shares redeemed................ (228,470) (410,675) (84,110) (1,007)
------------ -------------- ------------- --------------
Net increase in net assets
from Class C share transactions ............ 191,834 56,929 541,499 86,381
------------ -------------- ------------- --------------
Net increase (decrease) in net assets
from capital share transactions............. 810,915 (10,690,613) (8,525,674) (16,477,179)
------------ -------------- ------------- --------------
TOTAL DECREASE IN NET ASSETS ................. (701,093) (7,336,047) (8,478,274) (16,733,209)
NET ASSETS:
Beginning of year........................... 57,567,036 64,903,083 20,838,719 37,571,928
------------ -------------- ------------- --------------
End of year................................. $ 56,865,943 $ 57,567,036 $12,360,445 $20,838,719
============ ============== ============= ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET
ASSETS For the Periods Ended September 30, 1996 and 1995
===================================================================================================================
GLOBAL BOND FUND
===================================================================================================================
YEAR PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
1996 1995(A)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ................................................ $ 937,874 $ 254,441
Net realized gains (losses) from security transactions ............... (93,933) 157,918
Net realized losses from foreign currency transactions................ (235,290) (106,555)
Net change in unrealized appreciation/depreciation on investments..... 161,908 119,054
Net change in unrealized appreciation/depreciation on translation
of assets and liabilities in foreign currencies..................... 57,520 (22,573)
-------------- ---------------
Net increase in net assets from operations .............................. 828,079 402,285
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A .................................. (173,473) (232,249)
From net investment income, Class C .................................. (51,783) (13,837)
-------------- ---------------
Decrease in net assets from distributions to shareholders ............... (225,256) (246,086)
-------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold ............................................ 2,196,018 13,448,590
Net asset value of shares issued in reinvestment of
distributions to shareholders....................................... 167,215 226,752
Payments for shares redeemed ......................................... (3,249,417) (560,630)
-------------- ---------------
Net increase (decrease) in net assets from Class A share transactions ... (886,184) 13,114,712
-------------- ---------------
CLASS C
Proceeds from shares sold ............................................ 2,001,544 4,554,154
Net asset value of shares issued in reinvestment of
distributions to shareholders 50,833 13,614
Payments for shares redeemed.......................................... (895,367) (23,635)
-------------- ---------------
Net increase in net assets from Class C share transactions .............. 1,157,010 4,544,133
-------------- ---------------
Net increase in net assets from capital share transactions............... 270,826 17,658,845
-------------- ---------------
TOTAL INCREASE IN NET ASSETS ........................................... 873,649 17,815,044
NET ASSETS:
Beginning of period................................................... 17,815,044 --
-------------- ---------------
End of period......................................................... $ 18,688,693 $ 17,815,044
============== ===============
UNDISTRIBUTED NET INVESTMENT INCOME ..................................... $ 720,973 $ 8,355
============== ===============
<FN>
(A)Represents the period from initial public offering of shares (February 1,
1995) through September 30, 1995.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- ---------- --------- -----------
Net investment income .......................... 0.044 0.046 0.027 0.022 0.035
---------- --------- ---------- --------- -----------
Dividends from net investment income............ (0.044) (0.046) (0.027) (0.022) (0.035)
---------- --------- ---------- --------- -----------
Net asset value at end of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========== ========= ===========
Total return ................................... 4.51% 4.69% 2.72% 2.24% 3.55%
========== ========= ========== ========= ===========
Net assets at end of year (000's) .............. $ 91,439 $ 87,141 $ 89,708 $ 96,962 $91,519
---------- --------- ---------- --------- -----------
Ratio of expenses to average net assets ........ 0.99% 0.99% 0.99% 0.99% 0.99%
Ratio of net investment income to average
net assets 4.42% 4.59% 2.69% 2.22% 3.51%
- - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INSTITUTIONAL GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED SEPTEMBER 30,
===================================================================================================================
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- ---------- --------- -----------
Net investment income........................... 0.051 0.053 0.034 0.029 0.040
---------- --------- ---------- --------- -----------
Dividends from net investment income............ (0.051) (0.053) (0.034) (0.029) (0.040)
---------- --------- ---------- --------- -----------
Net asset value at end of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========= ========== ========= ===========
Total return.................................... 5.18% 5.42% 3.43% 2.96% 4.08%
========== ========= ========== ========= ===========
Net assets at end of year (000's) .............. $ 39,382 $ 36,009 $ 41,769 $ 34,610 $43,432
========== ========= ========== ========= ===========
Ratio of expenses to average net assets(A) ..... 0.40% 0.40% 0.40% 0.40% 0.37%
Ratio of net investment income to average
net assets 5.06% 5.30% 3.41% 2.92% 4.04%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 0.49%, 0.42%, 0.42%, 0.48% and 0.43% for the years
ended September 30, 1996, 1995, 1994, 1993 and 1992, respectively (Note 4).
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE TERM GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS - CLASS A
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 10.73 $ 10.14 $ 11.59 $ 11.10 $ 10.45
---------- --------- ---------- --------- -----------
Income from investment operations:
Net investment income........................ 0.61 0.64 0.56 0.60 0.68
Net realized and unrealized gains (losses)
on investments............................. (0.24) 0.59 (1.32) 0.49 0.65
---------- --------- ---------- --------- -----------
Total from investment operations................ 0.37 1.23 (0.76) 1.09 1.33
---------- --------- ---------- --------- -----------
Less distributions:
Dividends from net investment income......... (0.61) (0.64) (0.56) (0.60) (0.68)
Distributions from net realized gains........ -- -- (0.13) -- --
---------- --------- ---------- --------- -----------
Total distributions............................. (0.61) (0.64) (0.69) (0.60) (0.68)
---------- --------- ---------- --------- -----------
Net asset value at end of year.................. $ 10.49 $ 10.73 $ 10.14 $ 11.59 $ 11.10
========== ========= ========== ========= ===========
Total return(A) ................................ 3.55% 12.52% (6.76%) 10.15% 13.27%
========== ========= ========== ========= ===========
Net assets at end of year (000's)............... $ 56,095 $ 56,969 $ 64,395 $ 89,666 $59,290
========== ========= ========== ========= ===========
Ratio of expenses to average net assets......... 0.99% 0.99% 0.99% 0.99% 1.00%
Ratio of net investment income to average
net assets................................... 5.75% 6.17% 5.17% 5.31% 6.40%
Portfolio turnover rate......................... 70% 58% 236% 255% 76%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A) The total returns shown do not include the effect of applicable sales
loads.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE TERM GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS - CLASS C
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
YEAR YEAR PERIOD
ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1994(A)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................. $ 10.73 $ 10.14 $ 11.27
-------------- -------------- ---------------
Income from investment operations:
Net investment income................................ 0.56 0.59 0.34
Net realized and unrealized gains (losses) on
investments........................................ (0.24) 0.59 (1.13)
-------------- -------------- ---------------
Total from investment operations........................ 0.32 1.18 (0.79)
-------------- -------------- ---------------
Less distributions:
Dividends from net investment income................. (0.56) (0.59) (0.34)
-------------- -------------- ---------------
Total distributions..................................... (0.56) (0.59) (0.34)
-------------- -------------- ---------------
Net asset value at end of period........................ $ 10.49 $ 10.73 $ 10.14
============== ============== ===============
Total return(B) ........................................ 3.03% 11.96% (10.38%)(D)
============== ============== ===============
Net assets at end of period (000's)..................... $ 771 $ 598 $ 508
============== ============== ===============
Ratio of expenses to average net assets(C) ............. 1.49% 1.48% 1.46%(D)
Ratio of net investment income to average net assets.... 5.25% 5.60% 4.89%(D)
Portfolio turnover rate................................. 70% 58% 236%(D)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from initial public offering of Class C shares
(February 1, 1994) through September 30, 1994.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 2.96%, 3.57% and
2.41%(D) for the periods ended September 30, 1996, 1995 and 1994,
respectively (Note 4).
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS A
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1994 1993(A)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period ........ $ 9.78 $ 9.82 $ 10.01 $ 10.00
------------ -------------- ------------- --------------
Income from investment operations:
Net investment income ...................... 0.57 0.55 0.39 0.28
Net realized and unrealized gains (losses)
on investments 0.03 (0.04) (0.18) 0.01
------------ -------------- ------------- --------------
Total from investment operations .............. 0.60 0.51 0.21 0.29
------------ -------------- ------------- --------------
Less distributions:
Dividends from net investment income........ (0.57) (0.55) (0.39) (0.28)
Distributions from net realized gains....... -- -- (0.01) -
------------ -------------- ------------- --------------
Total distributions ........................... (0.57) (0.55) (0.40) (0.28)
------------ -------------- ------------- --------------
Net asset value at end of period .............. $ 9.81 $ 9.78 $ 9.82 $ 10.01
============ ============== ============= ==============
Total return(B) ............................... 6.32% 5.33% 2.09% 4.56%(D)
============ ============== ============= ==============
Net assets at end of period (000's) ........... $ 11,732 $ 20,752 $ 37,572 $ 24,400
============ ============== ============= ==============
Ratio of expenses to average net assets(C) .... 0.75% 0.75% 0.68% 0.22%(D)
Ratio of net investment income to average net assets 5.91% 5.57% 3.91% 4.17%(D)
Portfolio turnover rate ....................... 44% 115% 81% 170%(D)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the initial public offering of Class A shares
(February 10, 1993) through September 30, 1993.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 1.46%, 1.21%,
0.78% and 1.18%(D) for the periods ended September 30, 1996, 1995, 1994 and
1993, respectively (Note 4).
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS - CLASS C
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
<S> <C> <C>
YEAR PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
1996 1995(A)
- - -------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .................................. $ 9.78 $ 9.76
-------------- ---------------
Income from investment operations:
Net investment income ................................................ 0.52 0.22
Net realized and unrealized gains on investments ..................... 0.03 0.02
-------------- ---------------
Total from investment operations ........................................ 0.55 0.24
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. (0.52) (0.22)
-------------- ---------------
Total distributions ..................................................... (0.52) (0.22)
-------------- ---------------
Net asset value at end of period ........................................ $ 9.81 $ 9.78
============== ===============
Total return(B) ......................................................... 5.77% 5.87%(D)
============== ===============
Net assets at end of period (000's) ..................................... $ 629 $ 86
============== ===============
Ratio of expenses to average net assets(C) .............................. 1.24% 1.24%(D)
Ratio of net investment income to average net assets .................... 5.17% 5.38%(D)
Portfolio turnover rate ................................................. 44% 115%(D)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the initial public offering of Class C shares (May 1, 1995) through September
30, 1995.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C Absent fee waivers and expense reimbursements by the Adviser, the ratio of
expenses to average net assets would have been 7.58% and 18.84%(D) for the
periods ended September 30, 1996 and 1995, respectively (Note 4).
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL BOND FUND
FINANCIAL HIGHLIGHTS - CLASS A
=============================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=============================================================================================================
YEAR PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
1996 1995(A)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 10.64 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.57 0.35
Net realized and unrealized gains (losses) on investments and
foreign currency (0.05) 0.64
-------------- ---------------
Total from investment operations......................................... 0.52 0.99
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. (0.13) (0.35)
-------------- ---------------
Total distributions...................................................... (0.13) (0.35)
-------------- ---------------
Net asset value at end of period......................................... $ 11.03 $ 10.64
============== ===============
Total return(B) ......................................................... 4.88% 14.89%(D)
============== ===============
Net assets at end of period (000's)...................................... $ 12,841 $ 13,297
============== ===============
Ratio of expenses to average net assets(C) .............................. 1.35% 1.33%(D)
Ratio of net investment income to average net assets..................... 4.97% 4.30%(D)
Portfolio turnover rate.................................................. 235% 130%(D)
- - ----------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from initial public offering of Class A shares
(February 1, 1995) through September 30, 1995.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.50% and 2.47%(D) for
the periods ended September 30, 1996 and 1995, respectively (Note 4).
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL BOND FUND
FINANCIAL HIGHLIGHTS - CLASS C
=============================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=============================================================================================================
YEAR PERIOD
ENDED ENDED
SEPT. 30, SEPT. 30,
1996 1995(A)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period................................... $ 10.59 $ 10.00
-------------- ---------------
Income from investment operations:
Net investment income................................................. 0.51 0.38
Net realized and unrealized gains (losses) on investments and
foreign currency (0.08) 0.57
-------------- ---------------
Total from investment operations......................................... 0.43 0.95
-------------- ---------------
Less distributions:
Dividends from net investment income.................................. (0.10) (0.36)
-------------- ---------------
Total distributions...................................................... (0.10) (0.36)
-------------- ---------------
Net asset value at end of period......................................... $ 10.92 $ 10.59
============== ===============
Total return(B) ......................................................... 4.10% 14.25%(D)
============== ===============
Net assets at end of period (000's)...................................... $ 5,847 $ 4,518
============== ===============
Ratio of expenses to average net assets(C) .............................. 2.00% 1.98%(D)
Ratio of net investment income to average net assets..................... 4.34% 3.70%(D)
Portfolio turnover rate.................................................. 235% 130%(D)
- - ----------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from initial public offering of Class C shares
(February 1, 1995) through September 30, 1995.
(B) The total returns shown do not include the effect of applicable sales
loads.
(C) Absent fee waivers and expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 2.03% and 3.45%(D) for
the periods ended September 30, 1996 and 1995, respectively (Note 4).
(D) Annualized.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
==============================================================================
1. ORGANIZATION
The Short Term Government Income Fund, the Institutional Government Income
Fund, the Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund (collectively, the Funds)
are each a series of Midwest Trust (the Trust). The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Trust was organized as a Massachusetts business trust
on December 7, 1980. The Declaration of Trust, as amended, permits the
Trustees to issue an unlimited number of shares of each Fund.
The Short Term Government Fund invests primarily in short-term U.S. Government
obligations backed by the "full faith and credit" of the United States and
seeks high current income, consistent with protection of capital.
The Institutional Government Income Fund seeks high current income, consistent
with protection of capital, by investing primarily in short-term obligations
issued or guaranteed as to principal and interest by the United States
Government, its agencies or instrumentalities. The Fund is designed primarily
for institutions as an economical and convenient means for the investment of
short-term funds.
The Intermediate Term Government Income Fund invests primarily in U.S.
Government obligations maturing within twenty years or less with a
dollar-weighted average portfolio maturity under normal market conditions of
between three and ten years and seeks high current income, consistent with
protection of capital. To the extent consistent with the Fund's primary
objective, capital appreciation is a secondary objective.
The Adjustable Rate U.S. Government Securities Fund seeks high current income,
consistent with lower volatility of principal, by investing primarily in
mortgage-backed securities created from pools of adjustable rate mortgages
which are issued or guaranteed by the United States Government, its agencies
or instrumentalities.
The Global Bond Fund seeks high total return, through both income and capital
appreciation. The Fund invests primarily in high-grade domestic and foreign
fixed-income securities.
The Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund each offer two classes of
shares: Class A shares (sold subject to a maximum front-end sales load of 2%
for the Intermediate Term Government Income Fund and the Adjustable Rate U.S.
Government Securities Fund and 4% for the Global Bond Fund, and a distribution
fee of up to 0.35% of average daily net assets of each Fund) and Class C
shares (sold subject to a maximum contingent deferred sales load of 1% if
redeemed within a one-year period from purchase, and a distribution fee of up
to 1% of average daily net assets.) Each Class A and Class C share of a Fund
represents identical interests in the investment portfolio of such Fund and
has the same rights, except that (i) Class C shares bear the expenses of
higher distribution fees, which is expected to cause Class C shares to have a
higher expense ratio and to pay lower dividends than Class A shares; (ii)
certain other class specific expenses will be borne solely by the class to
which such expenses are attributable; and (iii) each class has exclusive
voting rights with respect to matters relating to its own distribution
arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Securities valuation -- Short Term Government Income Fund securities and
Institutional Government Income Fund securities are valued on the amortized
cost basis, which approximates market value. This involves initially valuing a
security at its original cost and thereafter assuming a constant amortization
to maturity of any discount or premium. This method of valuation is expected
to enable these Funds to maintain a constant net asset value per share.
Intermediate Term Government Income Fund securities, Adjustable Rate U.S.
Government Securities Fund securities and Global Bond Fund securities 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 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 U.S. dollar value of foreign
securities and forward foreign currency exchange contracts in the Global Bond
Fund is determined using spot and forward currency exchange rates,
respectively, supplied by a quotation service.
<PAGE>
Repurchase agreements -- Repurchase agreements, which are collateralized by
U.S. Government obligations, are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' custodian, at the
Federal Reserve Bank of Cleveland. At the time each Fund enters into a
repurchase agreement, the seller agrees that the value of the underlying
securities, including accrued interest, will at all times be equal to or
exceed the face amount of the repurchase agreement. In addition, each Fund
actively monitors and seeks additional collateral, as needed. Each Fund enters
into repurchase agreements only with institutions deemed to be creditworthy by
the adviser, including banks having assets in excess of $10 billion and
primary U.S. Government securities dealers.
Share valuation -- The net asset value per share of the Short Term Government
Income Fund and the Institutional Government Income Fund is calculated daily
by dividing the total value of a Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per
share is equal to the net asset value per share.
The net asset value per share of each class of shares of the Intermediate Term
Government Income Fund, the Adjustable Rate U.S. Government Securities Fund
and the Global Bond Fund is also calculated daily by dividing the total value
of a Fund's assets attributable to that class, less liabilities attributable
to that class, by the number of shares of that class outstanding. The maximum
offering price of Class A shares of the Intermediate Term Government Income
Fund and the Adjustable Rate U.S. Government Securities Fund is equal to net
asset value per share plus a sales load equal to 2.04% of the net asset value
(or 2% of the offering price). The maximum offering price of Class A shares of
the Global Bond Fund is equal to net asset value per share plus a sales load
equal to 4.17% of the net asset value (or 4% of the offering price). The
offering price of Class C shares of each Fund is equal to the net asset value
per share.
The redemption price per share of Class A shares and Class C shares of the
Intermediate Term Government Income Fund, the Adjustable Rate U.S. Government
Securities Fund and the Global Bond Fund is equal to the net asset value per
share. However, Class C shares of each Fund are subject to a contingent
deferred sales load of 1% of the original purchase price if redeemed within a
one-year period from the date of purchase.
Investment income -- Interest income is accrued as earned. Discounts and
premiums on securities purchased are amortized in accordance with income tax
regulations which approximate generally accepted accounting principles.
Distributions to shareholders -- Dividends arising from net investment income
are declared daily and paid on the last business day of each month to
shareholders of the Short Term Government Income Fund, the Institutional
Government Income Fund, the Intermediate Term Government Income Fund and the
Adjustable Rate U.S. Government Securities Fund. Dividends arising from net
investment income are declared and paid at the discretion of management to
shareholders of the Global Bond Fund. With respect to each Fund, net realized
short-term capital gains, if any, may be distributed throughout the year and
net realized long-term capital gains, if any, are distributed at least once
each year. Income distributions and capital gain distributions are determined
in accordance with income tax regulations.
Allocations between classes -- Investment income earned by the Intermediate
Term Government Income Fund, the Adjustable Rate U.S. Government Securities
Fund and the Global Bond Fund is allocated daily to each class of shares based
on the percentage of the net asset value of settled shares of such class to
the total of the net asset value of settled shares of both classes of shares.
Realized capital gains and losses and unrealized appreciation and depreciation
are allocated daily to each class of shares based upon its proportionate share
of total net assets of the Fund. Class specific expenses are charged directly
to the class incurring the expense. Common expenses which are not attributable
to a specific class are allocated daily to each class of shares based upon its
proportionate share of total net assets of the Fund.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes has been made.
<PAGE>
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during
the twelve months ended October 31) plus undistributed amounts from prior
years.
The following information is based upon federal income tax cost of portfolio
investments (excluding repurchase agreements) as of September 30, 1996:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
ADJUSTABLE
INTERMEDIATE RATE U.S.
TERM GOVERNMENT GLOBAL
GOVERNMENT SECURITIES BOND
INCOME FUND FUND FUND
<S> <C> <C> <C>
Gross unrealized appreciation........................... $ 858,035 $ 127,545 $ 410,718
Gross unrealized depreciation........................... (647,331) (2,944) (84,937)
-------------- -------------- ---------------
Net unrealized appreciation. ..................... $ 210,704 $ 124,601 $ 325,781
============== ============== ===============
Federal income tax cost................................. $ 55,534,106 $ 11,382,080 $ 17,784,437
============== ============== ===============
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1996, the Institutional Government Income Fund had capital
loss carryforwards for federal income tax purposes of $24,902, none of which
will expire prior to September 30, 2001. As of September 30, 1996, the
Intermediate Term Government Income Fund and the Adjustable Rate U.S.
Government Securities Fund had capital loss carryforwards for federal income
tax purposes of $2,899,292 and $1,249,150, respectively, none of which will
expire prior to September 30, 2003. These capital loss carryforwards may be
utilized in future years to offset net realized capital gains prior to
distributing such gains to shareholders.
Reclassification of capital accounts -- In accordance with generally accepted
accounting principles, the Global Bond Fund, as of September 30, 1996,
reclassified $433,066 from accumulated net realized losses on foreign currency
transactions to undistributed net investment income. This reclassification,
which has no impact on the net asset value of the Fund, is primarily
attributable to permanent differences between federal income tax regulations
and generally accepted accounting principles regarding the classification of
realized foreign currency gains and losses.
3. INVESTMENT TRANSACTIONS
During the year ended September 30, 1996, purchases and proceeds from sales
and maturities of investment securities, other than short-term investments,
amounted to $40,146,808 and $38,527,439, respectively, for the Intermediate
Term Government Income Fund, $6,594,895 and $14,647,758, respectively, for the
Adjustable Rate U.S. Government Securities Fund and $41,658,696 and
$39,696,182, respectively, for the Global Bond Fund.
4. TRANSACTIONS WITH AFFILIATES
The President of the Trust is the controlling shareholder of Leshner
Financial, Inc., whose subsidiaries include Midwest Group Financial Services,
Inc. (the Adviser), the Trust's investment manager and principal underwriter,
and MGF Service Corp. (MGF), the shareholder servicing and transfer agent and
accounting and pricing agent for the Trust.
MANAGEMENT AND SUBADVISORY AGREEMENTS
Each Fund's investments are supervised by the Adviser under the terms of a
Management Agreement. Under the Management Agreement, the Short Term
Government Income Fund, the Intermediate Term Government Income Fund and the
Adjustable Rate U.S. Government Securities Fund each pay the Adviser a fee,
which is computed and accrued daily and paid monthly, at an annual rate of
0.50% of its respective average daily net assets up to $50,000,000; 0.45% of
such net assets from $50,000,000 to $150,000,000; 0.40% of such net assets
from $150,000,000 to $250,000,000; and 0.375% of such net assets in excess of
$250,000,000. The Institutional Government Income Fund pays the Adviser a fee,
which is computed and accrued daily and paid monthly, at an annual rate of
0.20% of its average daily net assets. The Global Bond Fund pays the Adviser a
fee, which is computed and accrued daily and paid monthly, at an annual rate
of 0.70% of its average daily net assets up to $100,000,000 and 0.60% of such
net assets in excess of $100,000,000.
<PAGE>
The Adviser retains Hanover Capital Advisors, Inc. (Hanover) to regularly
review the Adjustable Rate U.S. Government Securities Fund's portfolio
holdings, recommend securities to be purchased for the Fund and confer with
the Adviser regarding the credit and maturity guidelines for investments in
the Fund's portfolio. The Adviser (not the Fund) pays Hanover a fee equal to
an annual rate of 0.25% of the Fund's average daily net assets up to
$50,000,000; 0.225% of such net assets from $50,000,000 to $150,000,000; 0.20%
of such net assets from $150,000,000 to $250,000,000; and 0.1875% of such net
assets in excess of $250,000,000. The fee paid to Hanover is subject to
reduction in the event the Adviser waives or reimburses any portion of its
advisory fee in order to reduce the operating expenses of the Fund.
The Adviser retains Rogge Global Partners, plc (Rogge) to manage the Global
Bond Fund's investments. The Adviser (not the Fund) pays Rogge a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.35% of the
Fund's average daily net assets up to $100,000,000 and 0.30% of such net
assets in excess of $100,000,000.
In order to voluntarily reduce operating expenses during the year ended
September 30, 1996, the Adviser waived $32,783 of its advisory fees for the
Institutional Government Income Fund; reimbursed $10,334 of Class C expenses
for the Intermediate Term Government Income Fund; waived its entire advisory
fee of $79,927 and reimbursed $33,564 of common expenses and $11,886 of Class
C expenses for the Adjustable Rate U.S. Government Securities Fund; and waived
$6,473 of its advisory fees and reimbursed $16,631 of Class A expenses for the
Global Bond Fund.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and MGF, MGF maintains the records of
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For these services, MGF receives a monthly fee at an annual
rate of $25.00 per shareholder account from each of the Short Term Government
Income Fund and the Institutional Government Income Fund and $21.00 per
shareholder account from each of the Intermediate Term Government Income Fund,
the Adjustable Rate U.S. Government Securities Fund and the Global Bond Fund,
subject to a $1,000 minimum monthly fee for each Fund, or for each class of
shares of a Fund, as applicable. In addition, each Fund pays out-of-pocket
expenses including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and
MGF, MGF calculates the daily net asset value per share and maintains the
financial books and records of each Fund. For these services, MGF receives a
monthly fee, based on current asset levels, of $3,000 per month from each of
the Short Term Government Income Fund and the Institutional Government Income
Fund, $4,250 per month from each of the Intermediate Term Government Income
Fund and the Adjustable Rate U.S. Government Securities Fund, and $4,750 per
month from the Global Bond Fund. In addition, each Fund pays certain
out-of-pocket expenses incurred by MGF in obtaining valuations of such Fund's
portfolio securities.
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Adviser, the Adviser earned
$4,512, $1,049 and $3,490 from underwriting and broker commissions on the sale
of Class A shares of the Intermediate Term Government Income Fund, the
Adjustable Rate U.S. Government Securities Fund and the Global Bond Fund,
respectively, for the year ended September 30, 1996. In addition, the Adviser
collected $913, $600, and $5,973 of contingent deferred sales loads on the
redemption of Class C shares of the Intermediate Term Government Income Fund,
the Adjustable Rate U.S. Government Securities Fund and the Global Bond Fund,
respectively.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is 0.10% of the Institutional
Government Income Fund's average daily net assets and 0.35% of each of the
other Funds' average daily net assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of each Fund having two classes of shares may directly incur or
reimburse the Adviser for expenses related to the distribution and promotion
of shares. The annual limitation for payment of such expenses under the Class
C Plan is 1% of average daily net assets attributable to Class C shares.
<PAGE>
5. CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold and payments for shares redeemed as shown in the
Statements of Changes in Net Assets are the result of the following capital
share transactions for the periods ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
INTERMEDIATE TERM ADJUSTABLE RATE GLOBAL
GOVERNMENT U.S. GOVERNMENT BOND
INCOME FUND SECURITIES FUND FUND
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1996 1995 1996 1995 1996 1995(A)
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............................ 1,824,629 1,296,111 1,317,967 1,751,161 202,237 1,280,982
Shares issued in reinvestment of
distributions to shareholders........ 274,432 297,350 83,368 115,143 15,285 20,956
Shares redeemed........................ (2,059,645) (2,637,294) (2,327,350) (3,571,519) (302,506) (52,629)
---------- ---------- ----------- -------------- ------------ ---------
Net increase (decrease) in shares
outstanding.......................... 39,416 (1,043,833) (926,015) (1,705,215) (84,984) 1,249,309
Shares outstanding, beginning of period 5,308,934 6,352,767 2,121,595 3,826,810 1,249,309 --
---------- --------- ---------- ------------ ------------- ---------
Shares outstanding, end of period...... 5,348,350 5,308,934 1,195,580 2,121,595 1,164,325 1,249,309
========== ========== =========== ============ ============= =========
CLASS C
Shares sold............................ 36,099 42,546 63,042 8,783 187,748 427,772
Shares issued in reinvestment of
distributions to shareholders........ 3,345 2,836 824 154 4,672 1,259
Shares redeemed........................ (21,699) (39,738) (8,583) (103) (83,836) (2,192)
---------- ---------- ----------- ------------- ----------- ----------
Net increase in shares outstanding..... 17,745 5,644 55,283 8,834 108,584 426,839
Shares outstanding, beginning of period 55,773 50,129 8,834 -- 426,839 --
---------- ---------- ----------- ------------- ----------- ----------
Shares outstanding, end of period...... 73,518 55,773 64,117 8,834 535,423 426,839
========== ========== =========== ============= =========== ==========
- - ----------------------------------------------------------------------------------------------------------------------
<FN>
(A) Represents the period from the initial public offering of shares (February
1, 1995) through September 30, 1995.
</FN>
</TABLE>
Share transactions for the Short Term Government Income Fund and the
Institutional Government Income Fund are identical to the dollar value of
those transactions as shown in the Statements of Changes in Net Assets.
6. FOREIGN CURRENCY TRANSLATION
With respect to the Global Bond Fund, amounts denominated in or expected to
settle in foreign currencies are translated into U.S. dollars based on
exchange rates on the following basis:
A. The market values of investment securities and other assets and
liabilities are translated at the closing rate of exchange
each day.
B. Purchases and sales of investment securities and income and
expenses are translated at the rate of exchange prevailing on
the respective dates of such transactions.
C. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates
on investments from those resulting from changes in market
prices of securities held. Such fluctuations are included
with the net realized and unrealized gains or losses from
investments. Reported net realized foreign exchange gains
or losses arise from 1)sales of foreign currencies, 2) currency
gains or losses realized between the trade and settlement dates
on securities transactions, and 3) the difference between the
amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books, and the U.S. dollar equivalent of
the amounts actually received or paid. Reported net unrealized
foreign exchange gains or losses arise from changes in the value
of assets and liabilities, other than investment securities,
resulting from changes in exchange rates.
<PAGE>
7. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Global Bond Fund enters into foreign currency exchange contracts as a way
of managing foreign exchange rate risk. The Fund may enter into these
contracts for the purchase or sale of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The objective of the Fund's foreign
currency hedging transactions is to reduce the risk that the U.S. dollar value
of the Fund's securities denominated in foreign currency will decline in value
due to changes in foreign currency exchange rates. All foreign currency
exchange contracts are "marked-to-market" daily at the applicable translation
rates resulting in unrealized gains or losses. Realized and unrealized gains
or losses are included in the Fund's Statement of Assets and Liabilities and
Statement of Operations. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
At September 30, 1996, the Global Bond Fund had forward foreign currency
exchange contracts outstanding as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------
NET
UNREALIZED
SETTLEMENT TO RECEIVE INITIAL MARKET APPRECIATION
DATE (TO DELIVER) VALUE VALUE (DEPRECIATION)
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTRACTS TO SELL
10/04/96 (1,140,237) DEM $ (749,344) $ (747,774) $ 1,570
=============
11/15/96 (6,009,525) DEM (3,965,080) (3,952,199) 12,881
=============
11/15/96 (4,680,794) DKK (807,033) (801,761) 5,272
=============
11/15/96 (48,000,000) ESP (375,843) (373,787) 2,056
=============
11/15/96 (400,000,000) ITL (260,833) (261,877) (1,044)
=============
11/15/96 (759,192) NLG (450,292) (445,306) 4,986
============= ----------- ----------- ----------
Total sell contracts (6,608,425) (6,582,704) 25,721
----------- ----------- ----------
CONTRACTS TO BUY
10/03/96 766,381 CAD 561,126 562,569 1,443
=============
10/04/96 479,212 GBP 749,344 749,200 (144)
=============
10/08/96 708,716 AUD 561,835 560,554 (1,281)
=============
11/15/96 3,370,000 DKK 579,376 577,239 (2,137)
=============
11/15/96 48,000,000 ESP 375,731 373,787 (1,944)
=============
11/15/96 324,607,794 JPY 2,961,750 2,932,436 (29,314)
============= ------------- ------------- -------------
Total buy contracts 5,789,162 5,755,785 (33,377)
------------- ------------- -------------
NET CONTRACTS $ (819,263) $ (826,919) $ (7,656)
============= ============= =============
- - --------------------------------------------------------------------------------------------------------
<FN>
AUD-Australian Dollar DKK-Danish Krone ITL-Italian Lira
CAD-Canadian Dollar ESP-Spanish Peseta JPY-Japanese Yen
DEM-German Deutschemark GBP-British Pound Sterling NLG-Netherlands Guilder
</FN>
</TABLE>
8. SPECIAL MEETING OF GLOBAL BOND FUND SHAREHOLDERS (UNAUDITED)
On August 27, 1996, a Special Meeting of Shareholders of the Global Bond Fund
was held to approve or disapprove a new investment advisory agreement with
Rogge. The approval of the new investment advisory agreement, which has
substantially indentical terms and conditions as the previous agreement, was
made necessary because of the acquisition of Rogge by United Asset Management
Corporation. The total number of shares of the Fund present by proxy
represented 59.9% of the shares entitled to vote at the meeting. The results
of the voting were as follows: 1,073,533.278 shares for approval, no shares
against approval and 3,963.428 shares abstaining.
<PAGE>
<TABLE>
<CAPTION>
SHORT TERM GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
September 30, 1996
===========================================================================================================
PAR YIELD TO MARKET
VALUE U.S. TREASURY OBLIGATIONS-- 55.6% MATURITY(1) VALUE
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 5,000,000 U.S. Treasury Bills, 11/14/96............................. 5.349% $ 4,968,344
5,000,000 U.S. Treasury Notes, 4.375%, 11/15/96..................... 5.495% 4,993,196
3,000,000 U.S. Treasury Notes, 6.50%, 11/30/96...................... 5.309 to 5.544% 3,004,781
5,000,000 U.S. Treasury Bills, 12/12/96............................. 5.254% 4,948,200
5,000,000 U.S. Treasury Bills, 12/19/96............................. 5.214% 4,943,548
7,000,000 U.S. Treasury Notes, 8.00%, 1/15/97....................... 5.594 to 5.770% 7,044,513
5,000,000 U.S. Treasury Bills, 1/23/97.............................. 5.344% 4,917,113
4,000,000 U.S. Treasury Notes, 4.75%, 2/15/97....................... 5.657% 3,986,443
12,000,000 U.S. Treasury Notes, 6.75%, 2/28/97....................... 5.380 to 5.399% 12,065,728
- - --------------- ---------------
$ 51,000,000 TOTAL U.S. TREASURY OBLIGATIONS
===============
(Amortized Cost $50,871,866).............................. $ 50,871,866
---------------
<CAPTION>
==============================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS(2) -- 44.1% VALUE
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 978,000 Nesbitt Burns Securities, Inc., 4.50%, dated 9/30/96, due 10/1/96,
repurchase proceeds $978,122............................................ $ 978,000
13,500,000 Fuji Securities, Inc., 5.77%, dated 9/30/96, due 10/1/96,
repurchase proceeds $13,502,164......................................... 13,500,000
12,300,000 Daiwa Securities, Inc., 5.60%, dated 9/30/96, due 10/1/96,
repurchase proceeds $12,301,913......................................... 12,300,000
13,500,000 Dean Witter Reynolds, Inc., 5.15%, dated 9/26/96, due 10/3/96,
repurchase proceeds $13,513,519........................................ 13,500,000
- - --------------- ---------------
$ 40,278,000 TOTAL REPURCHASE AGREEMENTS ............................................... $ 40,278,000
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 99.7% .............. $ 91,149,866
OTHER ASSETS AND LIABILITIES, NET-- 0.3% .................................. 289,618
---------------
NET ASSETS-- 100.0% ....................................................... $ 91,439,484
===============
<FN>
(1) Yield to maturity at date of purchase.
(2) Repurchase agreements are fully collateralized by U.S. Government obilgations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INSTITUTIONAL GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
September 30, 1996
===========================================================================================================
PAR YIELD TO MARKET
VALUE U.S. GOVERNMENT AGENCY ISSUES-- 59.0% MATURITY(1) VALUE
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,000,000 Federal Home Loan Bank Notes, 5.59%, 10/16/96.................... 5.403% $ 1,000,070
2,000,000 Federal Home Loan Mortgage Corp. Notes, 5.53%, 11/1/96........... 5.453% 2,000,117
2,000,000 Federal National Mortgage Assoc. Notes, 4.50% 11/1/96............ 5.399% 1,998,339
250,000 Federal Home Loan Mortgage Corp. Notes, 4.625%, 11/15/96......... 5.390% 249,749
1,000,000 Tennessee Valley Authority Notes, 8.25%, 11/15/96................ 5.480% 1,003,210
2,000,000 Federal National Mortgage Assoc. Discount Notes, 12/19/96........ 5.430% 1,976,475
2,815,000 Student Loan Marketing Assoc. Floating Rate Notes, 12/20/96..... -- 2,814,786
400,000 Federal National Mortgage Assoc. Notes, 7.60%, 1/10/97........... 5.709% 402,004
2,500,000 Federal Home Loan Mortgage Corp. Notes, 7.91%, 1/13/97........... 5.460% 2,516,788
1,000,000 Federal Home Loan Bank Discount Notes, 1/13/97................... 5.444% 984,891
350,000 Tennessee Valley Authority Notes, 6.00%, 1/15/97................. 5.793% 350,193
1,000,000 Federal National Mortgage Assoc. Discount Notes, 1/30/97......... 5.479% 982,354
250,000 Federal Home Loan Bank Notes, 4.505%, 1/31/97.................... 5.650% 249,075
2,000,000 Federal Home Loan Mortgage Corp. Notes, 4.78%, 2/10/97........... 5.540% 1,994,661
2,000,000 Federal Home Loan Bank Discount Notes, 2/21/97................... 5.422% 1,958,053
278,533 Federal Home Loan Mortgage Corp. #M12937, 6.50%, 3/1/97.......... 6.500% 278,533
2,000,000 Federal Home Loan Bank Notes, 9.15%, 3/25/97..................... 5.668% 2,032,723
202,555 Federal Home Loan Mortgage Corp. #M14862, 6.50%, 8/1/97.......... 6.565% 202,450
219,120 Federal Home Loan Mortgage Corp. #M15133, 6.50%, 9/1/97.......... 6.437% 219,242
- - --------------- ---------------
$ 23,265,208 TOTAL U.S. GOVERNMENT AGENCY ISSUES
===============
(Amortized Cost $23,213,713)..................................... $ 23,213,713
---------------
<CAPTION>
============================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS(2)-- 40.5% VALUE
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 2,957,000 Nesbitt Burns Securities, Inc., 4.50%, dated 9/30/96, due 10/1/96,
repurchase proceeds $2,957,370.......................................... $ 2,957,000
5,000,000 Fuji Securities, Inc., 5.77%, dated 9/30/96, due 10/1/96,
repurchase proceeds $5,000,801.......................................... 5,000,000
3,000,000 Daiwa Securities, Inc., 5.60%, dated 9/30/96, due 10/1/96,
repurchase proceeds $3,000,467.......................................... 3,000,000
5,000,000 Dean Witter Reynolds, Inc., 5.15%, dated 9/26/96, due 10/3/96,
repurchase proceeds $5,005,007.......................................... 5,000,000
- - --------------- ---------------
$ 15,957,000 TOTAL REPURCHASE AGREEMENTS ............................................... $ 15,957,000
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 99.5% .............. $ 39,170,713
OTHER ASSETS AND LIABILITIES, NET-- 0.5% .................................. 211,351
---------------
NET ASSETS-- 100.0% ....................................................... $ 39,382,064
===============
<FN>
(1) Yield to maturity at date of purchase.
(2) Repurchase agreements are fully collateralized by U.S. Government obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERMEDIATE TERM GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
September 30, 1996
==========================================================================================================
PAR MARKET
VALUE INVESTMENTS -- 98.0% VALUE
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 12.9%
$ 1,000,000 U.S. Treasury Notes, 7.75%, 2/15/01........................................ $ 1,048,750
1,000,000 U.S. Treasury Notes, 8.00%, 5/15/01........................................ 1,060,625
3,000,000 U.S. Treasury Notes, 7.875%, 8/15/01....................................... 3,173,439
2,000,000 U.S. Treasury Notes, 7.50%, 11/15/01....................................... 2,086,874
- - --------------- ---------------
$ 7,000,000 TOTAL U.S. TREASURY OBLIGATIONS
- - ---------------
(Amortized Cost $7,084,664)................................................ $ 7,369,688
---------------
U.S. GOVERNMENT AGENCY ISSUES -- 85.1%
$ 1,000,000 Federal National Mortgage Assoc. Notes, 7.89%, 2/23/00..................... $ 1,024,210
2,000,000 Student Loan Marketing Assoc. Notes, 6.05%, 9/14/00........................ 1,969,014
1,500,000 Federal National Mortgage Assoc. Notes, 6.35%, 10/19/00.................... 1,476,885
2,000,000 Federal Home Loan Bank Notes, 5.58%, 2/23/01............................... 1,919,962
1,000,000 Federal National Mortgage Assoc. Notes, 6.45%, 3/26/01..................... 988,910
2,000,000 Federal National Mortgage Assoc. Notes, 6.83%, 4/23/01..................... 1,997,560
3,000,000 Federal National Mortgage Assoc. Notes, 6.74%, 5/7/01...................... 2,995,049
1,000,000 Student Loan Marketing Assoc. Medium Term Notes, 7.50%, 7/2/01............. 1,034,020
3,000,000 Federal Home Loan Bank Notes, 7.31%, 7/6/01................................ 3,084,099
3,000,000 Federal Home Loan Bank Medium Term Notes, 8.43%, 8/1/01.................... 3,214,770
2,300,000 Federal Home Loan Bank Notes, 6.25%, 9/27/01............................... 2,254,388
1,410,000 Federal National Mortgage Assoc. Strips, 3/9/02............................ 1,373,166
2,000,000 Federal National Mortgage Assoc. Notes, 7.55%, 4/22/02..................... 2,077,688
1,000,000 Federal Home Loan Mortgage Corp. Notes, 6.07%, 2/5/03...................... 957,725
1,000,000 Federal National Mortgage Assoc. Notes, 6.72%, 2/25/03..................... 983,140
3,000,000 Federal National Mortgage Assoc. Notes, 6.20%, 7/10/03..................... 2,873,985
2,000,000 Federal National Mortgage Assoc. Notes, 6.25%, 8/12/03..................... 1,912,284
2,000,000 Federal Home Loan Mortgage Corp. Notes, 8.19%, 10/6/04..................... 2,065,110
2,000,000 Federal Home Loan Mortgage Corp. Notes, 8.53%, 11/18/04.................... 2,080,774
1,000,000 Federal National Mortgage Assoc. Notes, 8.50%, 2/1/05...................... 1,040,804
1,000,000 Federal National Mortgage Assoc. Notes, 8.00%, 4/13/05..................... 1,006,810
1,000,000 Federal Home Loan Mortgage Corp. Notes, 7.83%, 4/13/05..................... 1,021,172
1,000,000 Federal Home Loan Mortgage Corp. Notes, 7.65%, 5/10/05..................... 1,008,546
2,000,000 Federal National Mortgage Assoc. Medium Term Notes, 6.85%, 8/22/05......... 1,981,480
2,000,000 Federal National Mortgage Assoc. Notes, 6.77%, 9/1/05...................... 1,969,699
1,000,000 Federal Home Loan Mortgage Corp. Notes, 6.75%, 1/19/06..................... 957,018
3,000,000 Federal Home Loan Mortgage Corp. Notes, 8.57%, 10/26/09.................... 3,106,854
- - --------------- ---------------
$ 48,210,000 TOTAL U.S. GOVERNMENT AGENCY ISSUES
- - --------------
(Amortized Cost $48,449,442) .............................................. $ 48,375,122
---------------
$ 55,210,000 TOTAL INVESTMENTS AT VALUE
===============
(Amortized Cost $55,534,106)............................................... $ 55,744,810
---------------
<PAGE>
INTERMEDIATE TERM GOVERNMENT INCOME FUND (continued)
==========================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS(1)-- 0.4% VALUE
- - -----------------------------------------------------------------------------------------------------------
$ 226,000 Nesbitt Burns Securities, Inc., 4.50%, dated 9/30/96, due 10/1/96
repurchase proceeds $226,028............................................ $ 226,000
- - --------------- ---------------
$ 226,000 TOTAL REPURCHASE AGREEMENTS ............................................... $ 226,000
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 98.4% .............. $ 55,970,810
OTHER ASSETS AND LIABILITIES, NET-- 1.6% .................................. 895,133
---------------
NET ASSETS-- 100.0% ....................................................... $ 56,865,943
===============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Government obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
September 30, 1996
=========================================================================================================
PAR MARKET
VALUE ADJUSTABLE RATE U.S. GOVERNMENT AGENCY ISSUES-- 93.1% VALUE
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 1,458,589 Federal National Mortgage Assoc. #70907, 7.28%, 3/1/18..................... $ 1,508,159
1,438,922 Federal Home Loan Mortgage Corp. #605793, 7.27%, 5/1/18.................... 1,468,593
1,841,468 Federal National Mortgage Assoc. #70614, 7.08%, 10/1/18.................... 1,887,016
2,043,443 Federal Home Loan Mortgage Corp. #846013, 7.72%, 6/1/22.................... 2,108,472
78,766 Government National Mortgage Assoc. #8182, 7.13%,4/20/23................... 79,799
967,807 Federal Home Loan Mortgage Corp. #846303, 7.46%, 6/24/26................... 1,000,115
1,206,404 Federal National Mortgage Assoc. #70176, 7.33%, 8/1/27..................... 1,245,110
2,143,611 Federal National Mortgage Assoc. #70243, 7.33%, 3/1/28..................... 2,209,417
- - --------------- ---------------
$ 11,179,010 TOTAL ADJUSTABLE RATE U.S. GOVERNMENT AGENCY ISSUES
===============
(Amortized Cost $11,382,080)............................................... $ 11,506,681
---------------
<CAPTION>
============================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS(1)-- 6.2% VALUE
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 769,000 Nesbitt Burns Securities, Inc., 4.50%, dated 9/30/96, due 10/1/96,
repurchase proceeds $769,096............................................ $ 769,000
- - --------------- ---------------
$ 769,000 TOTAL REPURCHASE AGREEMENTS ............................................... $ 769,000
=============== ---------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 99.3% ............. $ 12,275,681
OTHER ASSETS AND LIABILITIES, NET-- 0.7% .................................. 84,764
---------------
NET ASSETS-- 100.0% ....................................................... $ 12,360,445
===============
<FN>
(1) Repurchase agreements are fully collateralized by U.S. Government obligations.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GLOBAL BOND FUND
PORTFOLIO OF INVESTMENTS
September 30, 1996
==========================================================================================================
PAR MARKET
VALUE INVESTMENTS -- 96.9% VALUE
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 20.3%
USD 805,000 U.S. Treasury Notes, 7.50%, 11/15/01.................................. $ 839,967
USD 1,490,000 U.S. Treasury Notes, 6.375%, 8/15/02.................................. 1,479,290
USD 1,158,000 U.S. Treasury Notes, 7.00%, 7/15/06................................... 1,181,521
USD 300,000 U.S. Treasury Bonds, 6.75%, 8/15/26................................... 293,156
---------------
TOTAL U.S. TREASURY OBLIGATIONS
(Amortized Cost $3,766,894)........................................... $ 3,793,934
---------------
ASSET-BACKED SECURITIES -- 1.0%
USD 195,000 American Express Credit Account Master Trust #1996-1, 6.80%, 12/15/03. $ 195,956
---------------
TOTAL ASSET-BACKED SECURITIES
(Amortized Cost $196,645)............................................. $ 195,956
---------------
FOREIGN GOVERNMENT ISSUES -- 75.6%
AUD 610,000 Government of Australia, 10.00%, 10/15/07............................. $ 559,733
---------------
CAD 1,890,000 Government of Canada, 7.00%, 12/1/06.................................. 1,373,360
CAD 766,000 Government of Canada, 7.25%, 6/1/07................................... 564,173
---------------
1,937,533
---------------
DEM 575,000 Federal Republic of Germany, 6.50%, 3/15/00.......................... 400,885
DEM 1,880,000 Federal Republic of Germany, 5.875%, 5/15/00......................... 1,285,450
DEM 595,000 Treuhandanstalt, 7.75%, 10/1/02...................................... 434,840
DEM 1,410,000 Treuhandanstalt, 7.125%, 1/29/03..................................... 284,306
DEM 1,036,000 Federal Republic of Germany, 6.50%, 7/15/03.......................... 709,859
---------------
3,115,340
---------------
DKK 3,050,000 Government of Denmark, 8.00%, 3/15/06................................. 557,762
---------------
ESP 44,030,000 Government of Spain, 10.15%, 1/31/06................................. 392,486
ESP 44,300,000 Government of Spain, 8.80%, 4/30/06.................................. 354,921
---------------
747,407
---------------
GBP 765,000 U.K. Gilt, 8.50%, 12/7/05............................................. 1,265,891
GBP 673,000 U.K. Gilt, 7.50%, 12/7/06............................................. 1,039,673
---------------
2,305,564
---------------
ITL 590,000,000 Government of Italy, 9.50%, 2/1/99................................... 403,024
ITL 315,000,000 Government of Italy, 10.50%, 4/1/05.................................. 232,538
ITL 360,000,000 Government of Italy, 10.50%, 9/1/05.................................. 265,828
ITL 1,745,000,000 Government of Italy, 9.50%, 2/1/06................................... 1,225,243
---------------
2,126,633
---------------
NLG 1,380,000 Government of Netherlands, 8.50%, 3/15/01............................ 921,909
---------------
<PAGE>
<CAPTION>
GLOBAL BOND FUND (continued)
============================================================================================================
PAR MARKET
VALUE INVESTMENTS -- 96.9% VALUE
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SEK 9,100,000 Government of Sweden, 6.00%, 2/9/05.................................. $ 1,257,166
SEK 3,800,000 Government of Sweden, 8.00%, 8/15/07................................. 591,281
---------------
1,848,447
---------------
TOTAL FOREIGN GOVERNMENT ISSUES
(Amortized Cost $13,820,898).......................................... $ 14,120,328
---------------
TOTAL INVESTMENTS AT VALUE
(Amortized Cost $17,784,437).......................................... $ 18,110,218
OTHER ASSETS AND LIABILITIES, NET-- 3.1% ............................. 578,475
---------------
NET ASSETS-- 100.0% .................................................. $ 18,688,693
===============
<FN>
AUD-Australian Dollar GBP-British Pound Sterling
CAD-Canadian Dollar ITL-Italian Lira
DEM-German Deutschemark NLG-Netherlands Guilder
DKK-Danish Krone SEK-Swedish Krona
ESP-Spanish Peseta USD-U.S. Dollar
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
==============================================================================
Arthur Andersen LLP
To the Shareholders and Board of Trustees of Midwest Trust:
We have audited the accompanying statements of assets and liabilities of the
Short Term Government Income Fund, the Institutional Government Income Fund,
the Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund of Midwest Trust (a
Massachusetts business trust), including the portfolios of investments, as of
September 30, 1996, and the related statements of operations, the statements
of changes in net assets, and the financial highlights for the periods
indicated thereon. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 1996, by correspondence with custodians and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Short Term Government Income Fund, the Institutional Government Income Fund,
the Intermediate Term Government Income Fund, the Adjustable Rate U.S.
Government Securities Fund and the Global Bond Fund of Midwest Trust as of
September 30, 1996, the results of their operations, the changes in their net
assets, and their financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
November 6, 1996
<PAGE>
MIDWEST TRUST
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) (i) Financial Statements included in Part A:
Financial Highlights
(ii) Financial Statements included in Part B:
Portfolio of Investments, September 30, 1996
Statements of Assets and Liabilities,
September 30, 1996
Statements of Operations for the Year Ended
September 30, 1996
Statements of Changes in Net Assets for the
Years Ended September 30, 1996 and 1995
Financial Highlights
Notes to Financial Statements, September 30,
1996
(b) Exhibits:
(1) (i) Copy of Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 58, is hereby incorporated by
reference.
(ii) Copy of Amendment No. 1, dated December 8,
1994, to Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 60, is hereby incorporated by
reference.
(iii) Copy of Amendment No. 2, dated January 31,
1995, to Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 61, is hereby incorporated by
reference.
(2) (i) Copy of Registrant's Bylaws, which was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 26, is hereby incorporated by
reference.
<PAGE>
(ii) Copy of Amendment to Registrant's Bylaws
adopted on January 10, 1984, which was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 35, is hereby incorporated by
reference.
(3) Voting Trust Agreements - None.
(4) Specimen of Share Certificate, which was filed as
an Exhibit to Registrant's Post-Effective
Amendment No. 38, is hereby incorporated by
reference.
(5) (i) Copy of Registrant's Management Agreement
with Midwest Group Financial Services, Inc.
for the Short Term Government Income Fund and
the Intermediate Term Government Income Fund,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 62, is hereby
incorporated by reference.
(ii) Copy of Registrant's Management Agreement
with Midwest Group Financial Services, Inc.
for the Institutional Government Income Fund,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 62, is hereby
incorporated by reference.
(iii) Copy of Registrant's Management Agreement
with Midwest Group Financial Services, Inc.
for the Adjustable Rate U.S. Government
Securities Fund, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 62, is hereby incorporated by
reference.
(iv) Copy of Registrant's Management Agreement
with Midwest Group Financial Services, Inc.
for the Global Bond Fund, which was filed as
an Exhibit to Registrant's Post-Effective
Amendment No. 61, is hereby incorporated by
reference.
(v) Copy of Subadvisory Agreement between Midwest
Group Financial Services, Inc. and Hanover
Capital Advisors Inc. for the Adjustable Rate
U.S. Government Securities Fund, which was
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 62, is hereby
incorporated by reference.
<PAGE>
(vi) Copy of Advisory Agreement between Midwest
Group Financial Services, Inc. and Rogge
Global Partners plc for the Global Bond Fund
is filed herewith.
(6) (i) Copy of Registrant's Underwriting Agreement
with Midwest Group Financial Services, Inc.,
which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 63, is hereby
incorporated by reference.
(ii)Form of Underwriter's Dealer Agreement, which
was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 63, is hereby
incorporated by reference.
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or Officers
- None.
(8) (i) Copy of Custody Agreement with The Fifth
Third Bank, the custodian for the Short Term
Government Income Fund, the Intermediate Term
Government Income Fund, the Institutional
Government Income Fund and the Adjustable
Rate U.S. Government Securities Fund, which
was filed as an Exhibit to Registrant's Post-
Effective Amendment No. 49, is hereby
incorporated by reference.
(ii) Copy of Custody Agreement with The Northern
Trust Company, the custodian for the Global
Bond Fund, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 61,
is hereby incorporated by reference.
(9) (i) Copy of Transfer Agency, Dividend Disbursing,
Shareholder Service and Plan Agency Agreement
with MGF Service Corp., which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 61, is hereby incorporated by
reference.
(ii) Copy of Accounting and Pricing Services
Agreement with MGF Service Corp., which was
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 63, is hereby
incorporated by reference.
(iii)Copy of Administration Agreement between
Midwest Group Financial Services, Inc. and
MGF Service Corp. is filed herewith.
<PAGE>
(10) Opinion and Consent of Goodwin, Procter & Hoar, which
was filed with Registrant's Rule 24f-2 Notice for the
fiscal year ended September 30, 1996, is hereby
incorporated by reference.
(11) Consent of Arthur Andersen LLP is filed herewith.
(12) Financial Statements Omitted from Item 23 - None.
(13) Agreements or understandings concerning initial
capital - None.
(14)(i) Copy of the Midwest Group Individual
Retirement Account Plan, including Schedule
of Fees, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 45,
is hereby incorporated by reference.
(ii)Copy of the Midwest Group 403(b) Plan,
including Schedule of Fees, which was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 49, is hereby incorporated by
reference.
(iii)Copy of the Midwest Group Prototype Defined
Contribution Plan, which was filed as an
Exhibit to Post-Effective Amendment No. 4 of
Leeb Personal FinanceTM Investment Trust
(File No. 811-6374), is hereby incorporated
by reference.
(15)(i) Copy of Registrant's Plans of Distribution,
which were filed as an Exhibit to Post-
Effective Amendment No. 58, is hereby
incorporated by reference.
(ii) Form of Sales Agreement for Sales of No-Load
Mutual Funds, which was filed as an Exhibit
to Registrant's Post-Effective Amendment No.
61, is hereby incorporated by reference.
(iii) Form of Administration Agreement with respect
to the administration of shareholder
accounts, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 63,
is hereby incorporated by reference.
(16) Computations of each performance quotation
provided in response to Item 22, which were filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 43, are hereby incorporated by
reference.
(17) Financial Data Schedules
(i) Financial Data Schedule for Short Term
Government Income Fund is filed herewith.
<PAGE>
(ii) Financial Data Schedule for Intermediate Term
Government Income Fund - Class A is filed
herewith.
(iii) Financial Data Schedule for Intermediate Term
Government Income Fund - Class C is filed
herewith.
(iv) Financial Data Schedule for Institutional
Government Income Fund is filed herewith.
(v) Financial Data Schedule for Adjustable Rate
U.S. Government Securities Fund - Class A is
filed herewith.
(vi) Financial Data Schedule for Adjustable Rate
U.S. Government Securities Fund - Class C is
filed herewith.
(vii) Financial Data Schedule for Global Bond Fund
- Class A is filed herewith.
(viii) Financial Data Schedule for Global Bond Fund
- Class C is filed herewith.
(18) Amended Rule 18f-3 Plan Adopted With Respect to
the Multiple Class Distribution System of the
Midwest Group of Funds is filed herewith.
Item 25. Persons Controlled by or Under Common Control with the
- ------- ------------------------------------------------------
Registrant
----------
None.
Item 26. Number of Holders of Securities (as of December 31, 1996)
- ------- -----------------------------------------------------------
Title of Class Number of
-------------- Record
Holders
----------
Short Term Government Income Fund 6,013
Intermediate Term Government Income Fund
Class A Shares 2,017
Class C Shares 61
Institutional Government Income Fund 485
<PAGE>
Adjustable Rate U.S. Government Securities Fund
Class A Shares 505
Class C Shares 30
Global Bond Fund
Class A Shares 334
Class C Shares 140
Item 27. Indemnification
- ------- ---------------
Article VI of Registrant's Restated Agreement and Declaration
of Trust provides for indemnification of officers and Trustees
as follows:
"Section 6.4 Indemnification of Trustees,
----------- ---------------------------
Officers, etc. The Trust shall indemnify each of its
-------------
Trustees and officers (including persons who serve at the Trust's
request as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise, and including persons who served as directors or officers of
Midwest Income Investment Company) (hereinafter referred to as a
"Covered Person") against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants' and
counsel fees, incurred by any Covered Person in connection with the
defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved as
a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having
been such a Trustee or officer, director or trustee, and except that no
Covered Person shall be indemnified against any liability to the Trust
or its Shareholders to which such Covered Person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such
Covered Person's office ("disabling conduct"). Anything herein
contained to the contrary notwithstanding, no Covered Person shall be
indemnified for any liability to the Trust or its Shareholders to which
such Covered Person would otherwise be subject unless (1) a final
decision on the merits is made by a court or other body before whom the
proceeding was brought that the Covered Person to be indemnified was
not liable by reason of disabling conduct or, (2) in the absence of
such a decision, a reasonable determination is made, based upon a
review
<PAGE>
of the facts, that the Covered Person was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Company as defined
in the Investment Company Act of 1940 nor parties to the proceeding
("disinterested, non-party Trustees"), or (b) an independent legal
counsel in a written opinion.
Section 6.5 Advances of Expenses. The Trust
----------- --------------------
shall advance attorneys' fees or other expenses incurred by a Covered
Person in defending a proceeding, upon the undertaking by or on behalf
of the Covered Person to repay the advance unless it is ultimately
determined that such Covered Person is entitled to indemnification, so
long as one of the following conditions is met: (i) the Covered Person
shall provide security for his undertaking, (ii) the Trust shall be
insured against losses arising by reason of any lawful advances, or
(iii) a majority of a quorum of the disinterested non-party Trustees of
the Trust, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as opposed to
a full trial-type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc. The
----------- -----------------------------------
right of indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Trust" shall
include Midwest Income Investment Company, "Covered Person" shall
include such person's heirs, executors and administrators, an
"interested Covered Person" is one against whom the action, suit or
other proceeding in question or another action, suit or other
proceeding on the same or similar grounds is then or has been pending
or threatened, and a "disinterested" person is a person against whom
none of such actions, suits or other proceedings or another action,
suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this article shall
affect any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to purchase
and maintain liability insurance on behalf of any such person."
The Registrant maintains a standard mutual fund and investment advisory
professional and directors and officers liability policy. The policy
provides
<PAGE>
coverage to the Registrant, its Trustees and officers and Midwest Group
Financial Services, Inc. (the "Adviser"), in its capacity as investment
adviser and principal underwriter, among others. Coverage under the
policy includes losses by reason of any act, error, omission,
misstatement, misleading statement, neglect or breach of duty. The
Registrant may not pay for insurance which protects the Trustees and
officers against liabilities rising from action involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their offices.
The Advisory Agreements provide that each investment adviser shall not
be liable for any error of judgment or mistake of law or for any loss
suffered by the Registrant in connection with the matters to which the
Agreements relate, except a loss resulting from willful misfeasance,
bad faith or gross negligence of an investment adviser in the
performance of its duties or from the reckless disregard by the
investment adviser of its obligations under the Agreement. Registrant
will advance attorneys' fees or other expenses incurred by an
investment adviser in defending a proceeding, upon the undertaking by
or on behalf of the investment adviser to repay the advance unless it
is ultimately determined that the investment adviser is entitled to
indemnification.
The Underwriting Agreement with the Adviser provides that the Adviser,
its directors, officers, employees, shareholders and control persons
shall not be liable for any error of judgment or mistake of law or for
any loss suffered by Registrant in connection with the matters to which
the Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of any of such
persons in the performance of the Adviser's duties or from the reckless
disregard by any of such persons of the Adviser's obligations and
duties under the Agreement. Registrant will advance attorneys' fees or
other expenses incurred by any such person in defending a proceeding,
upon the undertaking by or on behalf of such person to repay the
advance if it is ultimately determined that such person is not entitled
to indemnification.
Item 28. Business and Other Connections of the Investment Advisers
---------------------------------------------------------
A. Midwest Group Financial Services, Inc. ("MGFS") is a
registered investment adviser providing investment
advisory services to the Short Term Government Income
Fund, the Intermediate Term Government Income Fund, the
Institutional Government Income Fund and the Adjustable
<PAGE>
Rate U.S. Government Securities Fund and investment management
supervisory services to the Global Bond Fund. MGFS also acts
as the investment adviser to six series of Midwest Group Tax
Free Trust and to four series of Midwest Strategic Trust, both
of which are registered investment companies. MGFS provides
investment advisory services to individual and institutional
accounts and is a registered broker-dealer.
The following list sets forth the business and other
connections of the directors and officers of MGFS. Unless
otherwise noted, the address of the corporations listed below
is 312 Walnut Street, Cincinnati, Ohio
45202.
(1) Robert H. Leshner - Chairman of the Board and a
Director of MGFS.
(a) President and a Trustee of Midwest Strategic
Trust, Midwest Trust and Midwest Group Tax
Free Trust, registered investment companies.
(b) Chairman of the Board and a Director of
Leshner Financial, Inc., a financial
services company.
(c) Chairman of the Board and a Director of MGF
Service Corp., a registered transfer agent.
(d) President and a Director of Leshner
Financial Services, Inc., a registered
investment adviser and registered broker-
dealer until December 1994.
(2) Michael F. Andrews - President of MGFS.
(a) Vice President and a Director of Leshner
Financial, Inc.
(b) President of ABT Financial Services, Inc.,
340 Royal Palm Way, Palm Beach, Florida
33480, until June 1995.
(3) James A. Markley, Jr. - A Director of MGFS.
(a) President and a Director of Leshner
Financial, Inc.
(b) A Director of MGF Service Corp.
(c) A Director of Sycamore National Bank, 3209
West Galbraith Road, Cincinnati, Ohio 45239.
<PAGE>
(d) President of MGFS until July 1995.
(e) President of MGF Service Corp. until
December 1994.
(f) A Director of Leshner Financial Services,
Inc. until December 1994.
(4) John J. Goetz - Chief Investment Officer of MGFS.
(a) Vice President of Leshner Financial, Inc.
(b) Vice President-Investments of Leshner
Financial Services, Inc. until December
1994.
(5) Maryellen Peretzky - Vice President, Assistant
Secretary and a Director of MGFS.
(a) Vice President and a Director of Leshner
Financial, Inc.
(b) Vice President of MGF Service Corp.
(c) Assistant Secretary of The Tuscarora
Investment Trust
(d) Vice President and a Director of Leshner
Financial Services, Inc. until December 1994
(6) Sharon L. Karp - Vice President of MGFS.
(a) Vice President of Leshner Financial, Inc.
(7) John F. Splain - Secretary and General Counsel of
MGFS.
(a) Secretary, General Counsel and a Director of
Leshner Financial, Inc.
(b) Secretary and General Counsel of MGF Service
Corp.
(c) Secretary of Midwest Group Tax Free Trust,
Midwest Trust, Midwest Strategic Trust,
Brundage, Story and Rose Investment Trust,
Williamsburg Investment Trust, Markman
MultiFund Trust, The Tuscarora Investment
Trust, PRAGMA Investment Trust, Maplewood
Investment Trust, a series company and The
Thermo Opportunity Fund, Inc., registered
investment companies.
<PAGE>
(d) Assistant Secretary of Fremont Mutual Funds,
Inc., Schwartz Investment Trust, The Gannett
Welsh & Kotler Funds and Capitol Square
Funds, registered investment companies.
(e) Secretary and General Counsel of Leshner
Financial Services, Inc. until December
1994.
(f) Secretary of Leeb Personal FinanceTM
Investment Trust, a registered investment
company, until November 1996.
(8) Robert G. Dorsey - Treasurer of MGFS.
(a) President of MGF Service Corp.
(b) Treasurer and a Director of Leshner
Financial, Inc.
(c) Vice President of Brundage, Story and Rose
Investment Trust, Markman MultiFund Trust,
PRAGMA Investment Trust, Maplewood
Investment Trust, a series company, The
Thermo Opportunity Fund, Inc. and Capitol
Square Funds.
(d) Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment Trust,
Fremont Mutual Funds, Inc., The Tuscarora
Investment Trust and The Gannett Welsh &
Kotler Funds.
(e) Treasurer of Leshner Financial Services,
Inc., until December 1994.
(f) Treasurer of Leeb Personal FinanceTM
Investment Trust until November 1996.
(9) Susan F. Flischel - Vice President-Investments of
MGFS.
(a) Assistant Vice President-Investments of
Leshner Financial Services, Inc. until
December 1994.
(10) Michele McClellan Hawkins - Assistant Vice
President of MGFS.
(11) Scott Weston - Assistant Vice President-
Investments of MGFS.
(12) Terrie A. Wiedenheft - Controller of MGFS
(a) Controller of Leshner Financial, Inc. and
MGF Service Corp.
<PAGE>
(13) Elizabeth A. Santen - Assistant Secretary of MGFS.
(a) Assistant Secretary of Leshner Financial,
Inc.
(b) Assistant Vice President of MGF Service Corp.
(c) Assistant Secretary of Midwest Trust, Midwest
Group Tax Free Trust, Midwest Strategic
Trust, The Tuscarora Investment Trust and
Maplewood Investment Trust, a series
company.
(d) Assistant Secretary of Leshner Financial
Services, Inc. until December 1994.
B. Hanover Capital Advisors Inc. ("Hanover") is a
registered investment advisor providing investment
management services to a number of institutional
clients in addition to the Adjustable Rate U.S.
Government Securities Fund. The following officers of
Hanover hold the same position with Hanover Capital
Partners Ltd., an investment banking firm and the
parent company of Hanover. The address of Hanover and
Hanover Capital Partners Ltd. is 90 West Street, Suite
1508, New York, New York 10006.
(1) John A. Burchett - President
(2) George J. Ostendorf - Managing Director
(3) Joyce S. Mizerak - Senior Vice President
(4) Irma N. Tavares - Senior Vice President
C. Rogge Global Partners plc ("Rogge") is a registered
investment adviser providing investment advisory
services to The Manager's Global Bond Fund and the Pace
Fixed Income Investments Fund, registered investment
companies, and other institutional clients. The
following are the directors of Rogge. The address of
Rogge is 5-6 St. Andrew's Hill, London, England EC4V-
5BY.
(1) Olaf Rogge
(2) John Graham
(3) Richard Bell
(4) Adrian James
(5) David Russell
<PAGE>
Item 29. Principal Underwriters
- ------- ----------------------
(a) Midwest Group Financial Services, Inc. also acts as
underwriter for Midwest Group Tax Free Trust, Midwest
Strategic Trust, Brundage, Story and Rose Investment Trust
and Maplewood Investment Trust, a series company.
Position With Position With
(b) Name Underwriter Registrant
---- ------------- -------------
Robert H. Leshner Chairman of the President and
Board and Director Trustee
Michael F. Andrews President None
James A. Markley, Jr. Director None
John J. Goetz Chief Investment None
Officer
Maryellen Peretzky Vice President, None
Assistant Secretary
and Director
Sharon L. Karp Vice President None
John F. Splain Secretary and Secretary
General Counsel
Robert G. Dorsey Treasurer None
Susan F. Flischel Vice President- None
Investments
Michele M. Hawkins Assistant Vice None
President
Scott Weston Assistant Vice- None
President-Investments
Terrie A. Wiedenheft Controller None
Elizabeth A. Santen Assistant Secretary Assistant
Secretary
The address of all of the above-named persons is 312 Walnut Street, Cincinnati,
Ohio 45202.
<PAGE>
Item 30. Location of Accounts and Records
- ------- --------------------------------
Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant.
Item 31. Management Services Not Discussed in Parts A or B
- ------- -------------------------------------------------
None.
Item 32. Undertakings
- ------- ------------
(a) Not Applicable.
(b) Not Applicable.
(c) The Registrant undertakes that, if so requested, it
will furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual
report without charge.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of Midwest Trust pursuant
to the provisions of Massachusetts law and the Restated
Agreement and Declaration of Trust of Midwest Trust or the
Bylaws of Midwest Trust, or otherwise, the Registrant has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of Midwest Trust in
the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
(e) The Registrant undertakes that, within five business days
after receipt of a written application by shareholders
holding in the aggregate at least 1% of the shares then
outstanding or shares then having a net asset value of
$25,000, whichever is less, each of whom shall have been a
shareholder for at least six months prior to the date of
application (hereinafter the "Petitioning Shareholders"),
requesting to communicate with other shareholders with a
view to obtaining signatures to a request for a meeting for
the purpose of voting upon removal of any Trustee of the
<PAGE>
Registrant, which application shall be accompanied by
a form of communication and request which such
Petitioning Shareholders wish to transmit, Registrant
will:
(i) provide such Petitioning Shareholders with access to a
list of the names and addresses of all shareholders of
the Registrant; or
(ii) inform such Petitioning Shareholders of the approximate
number of shareholders and the estimated costs of mailing
such communication, and to undertake such mailing
promptly after tender by such Petitioning Shareholders
to the Registrant of the material to be mailed and the
reasonable expenses of such mailing.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cincinnati, State of Ohio, on the 31st day of
January, 1997.
MIDWEST TRUST
/s/ John F. Splain
By:---------------------------
John F. Splain,
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ Robert H. Leshner
- --------------------- President January 31, 1997
ROBERT H. LESHNER and Trustee
/s/ Mark J. Seger
- --------------------- Treasurer January 31, 1997
MARK J. SEGER
*H. JEROME LERNER Trustee
*OSCAR P. ROBERTSON Trustee
*GARY W. HELDMAN Trustee
*DALE P. BROWN Trustee
*RICHARD A. LIPSEY Trustee
*DONALD J. RAHILLY Trustee
*FRED A. RAPPOPORT Trustee
*ROBERT B. SUMEREL Trustee
By:/s/ John F. Splain
-------------------------
JOHN F. SPLAIN
Attorney-in-Fact*
January 31, 1997
EXHIBIT INDEX
- -------------
1. Advisory Agreement between Midwest Group Financial Services,
Inc. and Rogge Global Partners plc for the Global Bond Fund
2. Administration Agreement between Midwest Group Financial
Services, Inc. and MGF Service Corp.
3. Consent of Arthur Andersen LLP
4. Financial Data Schedule for Short Term Government Income
Fund
5. Financial Data Schedule for Intermediate Term Government
Income Fund - Class A
6. Financial Data Schedule for Intermediate Term Government
Income Fund - Class C
7. Financial Data Schedule for Institutional Government Income
Fund
8. Financial Data Schedule for Adjustable Rate U.S. Government
Securities Fund - Class A
9. Financial Data Schedule for Adjustable Rate U.S. Government
Securities Fund - Class C
10. Financial Data Schedule for Global Bond Fund - Class A
11. Financial Data Schedule for Global Bond Fund - Class C
12. Amended Rule 18f-3 Plan Adopted with Respect to the Multiple
Class Distribution System of the Midwest Group of Funds
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Rogge Global Partners plc
5-6 St. Andrew's Hill
London EC4V 5BY England
Gentlemen:
Midwest Trust (the "Trust") is a diversified open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "Act"), and subject to the rules and regulations promulgated
thereunder. The Trust's shares of beneficial interest are divided into separate
series or funds. Each such share of a fund represents an undivided interest in
the assets, subject to the liabilities, allocated to that fund. Each fund has
separate investment objectives and policies. The Global Bond Fund (the "Fund")
has been established as a series of the Trust.
Midwest Group Financial Services, Inc. (the "Manager") acts as the
investment manager for the Fund pursuant to the terms of a Management
Agreement. The Manager is responsible for the coordination of investment of
the Fund's assets in portfolio securities. However, specific portfolio
purchases and sales for the investment portfolio of the Fund are to be made
by advisory organizations recommended by the Manager and approved by the
Board of Trustees of the Trust.
1. APPOINTMENT AS AN ADVISER. The Trust being duly authorized
hereby appoints and employs Rogge Global Partners, plc ("the Adviser") as the
discretionary portfolio manager of the Fund, on the terms and conditions set
forth herein.
- 1 -
<PAGE>
2. ACCEPTANCE OF APPOINTMENT; STANDARD OF PERFORMANCE.
The Adviser accepts the appointment as the discretionary portfolio manager and
agrees to use its best professional judgment to make timely investment decisions
for the Fund in accordance with the provisions of this Agreement.
3. PORTFOLIO MANAGEMENT SERVICES OF ADVISER. The Adviser is
hereby employed and authorized to select portfolio securities for investment by
the Fund, to purchase and sell securities of the Fund, and upon making any
purchase or sale decision, to place orders for the execution of such portfolio
transactions in accordance with paragraphs 5 and 6 hereof. In providing
portfolio management services to the Fund, the Adviser shall be subject to such
investment restrictions as are set forth in the Act and the rules thereunder,
the Internal Revenue Code, applicable state securities laws, the supervision and
control of the Board of Trustees of the Trust, such specific instructions as the
Board of Trustees may adopt and communicate to the Adviser, the investment
objectives, policies and restrictions of the Fund furnished pursuant to
paragraph 4, the provisions of Schedule A hereto and instructions from the
Manager. The Adviser is not authorized by the Fund to take any action, including
the purchase or sale of securities for the Fund, in contravention of any
- 2 -
<PAGE>
restriction, limitation, objective, policy or instruction described in the
previous sentence. The Adviser shall maintain on behalf of the Fund the records
listed in Schedule A hereto (as amended from time to time). At the Trust's
reasonable request, the Adviser will consult with the Manager with respect to
any decision made by it with respect to the investments of the Fund.
4. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The
Trust will provide the Adviser with the statement of investment objectives,
policies and restrictions applicable to the Fund as contained in the Fund's
registration statements under the Act and the Securities Act of 1933, and any
instructions adopted by the Board of Trustees supplemental thereto. The Trust
will provide the Adviser with such further information concerning the
investment objectives, policies and restrictions applicable thereto as the
Adviser may from time to time reasonably request. The Trust retains the right,
on written notice to the Adviser from the Trust or the Manager, to modify any
such objectives, policies or restrictions in any manner at any time.
5. TRANSACTION PROCEDURES. All transactions will be
consummated by payment to or delivery by The Northern Trust Company or any
successor custodian (the "Custodian"), or such depositories or agents as may
be designated by the Custodian in writing, as custodian for the Fund, of all
cash and/or securities due to or from the Fund, and the Adviser shall not have
possession or custody thereof. The Adviser shall advise the Custodian and
confirm in writing to the Trust and to the Manager
- 3 -
<PAGE>
all investment orders for the Fund placed by it with brokers and dealers. The
Adviser shall issue to the Custodian such instructions as may be appropriate in
connection with the settlement of any transaction initiated by the Adviser. It
shall be the responsibility of the Adviser to take appropriate action if the
Custodian fails to confirm in writing proper execution of the instructions.
6. ALLOCATION OF BROKERAGE. The Adviser shall have the
authority and discretion to select brokers and dealers to execute
portfolio transactions initiated by the Adviser, and for the selection of the
markets on or in which the transactions will be executed.
A. In doing so, the Adviser will give primary consideration to
securing the best qualitative execution, taking into account such factors as
price (including the applicable brokerage commission or dealer spread), the
execution capability, financial responsibility and responsiveness of the broker
or dealer and the brokerage and research services provided by the broker or
dealer. Consistent with this policy, the Adviser may select brokers or dealers
who also provide brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) to the other accounts over
which it exercises investment discretion. It is understood that neither the
Fund, the Manager nor the Adviser have adopted a formula for allocation of the
Fund's investment transaction business. It is also understood that it is
desirable for the
- 4 -
<PAGE>
Fund that the Adviser have access to supplemental investment and market research
and security and economic analyses provided by certain brokers who may execute
brokerage transactions at a higher commission to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the lowest
commission. Therefore, the Adviser is authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers, subject
to review by the Trust's Board of Trustees from time to time with respect to the
extent and continuation of this practice, provided that the Adviser determines
in good faith that the amount of the commission is reasonable in relation to the
value of the brokerage and research services provided by the executing broker or
dealer. The determination may be viewed in terms of either a particular
transaction or the Adviser's overall responsibilities with respect to the Fund
and to the other accounts over which it exercises investment discretion. It is
understood that although the information may be useful to the Trust and the
Adviser, it is not possible to place a dollar value on such information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution, 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.
- 5 -
<PAGE>
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the Adviser, to
the extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as expenses incurred in the transaction, will be made by the Adviser in the
manner it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund with respect to the Fund and to such other clients.
For each fiscal quarter of the Fund, the Adviser shall prepare and
render reports to the Manager and the Trust's Board of Trustees of the total
brokerage business placed and the manner in which the allocation has been
accomplished. Such reports shall set forth at a minimum the information required
to be maintained by Rule 31a-1(b)(9) under the Act.
B. Adviser agrees that it will not execute any portfolio
transactions for the Fund's account with a broker or dealer which is an
"affiliated person" (as defined in the Act) of the Trust, the Manager, the
Adviser or any portfolio manager of the Trust without the prior written approval
of the Manager. The Manager agrees that it will provide the Adviser with a list
of brokers and dealers which are "affiliated persons" of the Trust, the Manager
or the Adviser.
- 6 -
<PAGE>
7. PROXIES. The Trust will vote all proxies solicited by
or with respect to the issuers of securities in which assets of
the Fund may be invested from time to time. At the Fund's request, the
Adviser shall provide the Trust with its recommendations as to the voting
of such proxies.
\
8. REPORTS TO THE ADVISER. The Trust will provide the
Adviser with such periodic reports concerning the status of the Fund as the
Adviser may reasonably request.
9. FEES FOR SERVICES. For the services provided to the Fund, the
Manager shall pay the Adviser a fee equal to the annual rate of 35/100 of 1% of
the average value of the daily net assets of the Fund up to and including
$100,000,000 and 30/100 of 1% of such assets in excess of $100,000,000. The
Adviser agrees to waive all advisory fees for the first sixty days of the Fund's
operations. Thereafter, however, the Adviser shall not be required to waive any
portion of its fees if not required by an applicable statute or regulation.
The Adviser's fees shall be payable monthly within ten days following
the end of each month. Pursuant to the provisions of the Management Agreement
between the Trust and the Manager, the Manager is solely responsible for the
payment of fees to the Adviser, and the Adviser agrees to seek payment of the
Adviser's fees solely from the Manager.
10. OTHER INVESTMENT ACTIVITIES OF THE ADVISER. The Trust
acknowledges that the Adviser or one or more of its affiliates may have
investment responsibilities or render investment advice to or perform other
investment advisory services for other
- 7 -
<PAGE>
individuals or entities and that the Adviser, its affiliates or any of its or
their directors, officers, agents or employees may buy, sell or trade in any
securities for its or their respective accounts ("Affiliated Accounts"). Subject
to the provisions of paragraph 2 hereof, the Trust agrees that the Adviser or
its affiliates may give advice or exercise investment responsibility and take
such other action with respect to other Affiliated Accounts which may differ
from the advice given or the timing or nature of action taken with respect to
the Fund, provided that the Adviser acts in good faith, and provided further,
that it is the Adviser's policy to allocate, within its reasonable discretion,
investment opportunities to the Fund over a period of time on a fair and
equitable basis relative to the Affiliated Accounts, taking into account the
investment objectives and policies of the Fund and any specific investment
restrictions applicable thereto. The Trust acknowledges that one or more of the
Affiliated Accounts may at any time hold, acquire, increase, decrease, dispose
of or otherwise deal with positions in investments in which the Fund may have an
interest from time to time, whether in transactions which involve the Fund or
otherwise. The Adviser shall have no obligation to acquire for the Fund a
position in any investment which any Affiliated Account may acquire, and the
Trust shall have no first refusal, co-investment or other rights in respect of
any such investment, either for the Fund or otherwise.
- 8 -
<PAGE>
11. CERTIFICATE OF AUTHORITY. The Trust, the Manager and the
Adviser shall furnish to each other from time to time certified copies of the
resolutions of their Board of Trustees or Board of Directors or executive
committees, as the case may be, evidencing the authority of officers and
employees who are authorized to act on behalf of the Trust, the Fund, the
Manager and/or the Adviser.
12. LIMITATION OF LIABILITY. The Adviser shall not be liable for any
action taken, omitted or suffered to be taken by it in its reasonable judgment,
in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement, or in accordance with (or
in the absence of) specific directions or instructions from the Trust, provided,
however, that such acts or omissions shall not have resulted from the Adviser's
willful misfeasance, bad faith or gross negligence, a violation of the standard
of care established by and applicable to the Adviser in its actions under this
Agreement or breach of its duty or of its obligations hereunder. Nothing in this
paragraph 12 shall be construed in a manner inconsistent with Sections 17(h) and
(i) of the Act.
13. CONFIDENTIALITY. Subject to the duty of the Adviser and the
Trust to comply with applicable law, including any demand of any regulatory
or taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Fund and the actions of the
Adviser and the Trust in respect thereof.
- 9 -
<PAGE>
14. ASSIGNMENT. No assignment of this Agreement shall be made by the
Adviser, and this Agreement shall terminate automatically in the event of such
assignment. The Adviser shall notify the Trust in writing sufficiently in
advance of any proposed change of control, as defined in Section 2(a)(9) of the
Act, as will enable the Trust to consider whether an assignment will occur, and
to take the steps necessary to enter into a new contract with the Adviser.
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE TRUST. The
Trust represents, warrants and agrees that:
A. The Adviser has been duly appointed by the Board
of Trustees of the Trust to provide investment services to the Fund as
contemplated hereby.
B. The Trust will deliver to the Adviser a true and complete
copy of its then current prospectus and statement of additional information as
effective from time to time and such other documents or instruments governing
the investments of the Fund and such other information as is necessary for the
Adviser to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all
times comply with the requirements imposed upon the Fund by applicable laws
and regulations.
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE ADVISER.
The Adviser represents, warrants and agrees that:
A. The Adviser is registered as an "investment
adviser" under the Investment Advisers Act of 1940.
- 10 -
<PAGE>
B. The Adviser will maintain, keep current and preserve on
behalf of the Fund, in the manner and for the time periods required or permitted
by the Act, the records identified in Schedule A. The Adviser agrees that such
records (unless otherwise indicated on Schedule A) are the property of the
Trust, and will be surrendered to the Trust promptly upon request.
C. The Adviser will complete such reports concerning purchases
or sales of securities on behalf of the Fund as the Manager or the Trust may
from time to time require to ensure compliance with the Act, the Internal
Revenue Code and applicable state securities laws.
D. The Adviser will adopt a written code of ethics complying
with the requirements of Rule 17j-1 under the Act and will provide the Trust
with a copy of the code of ethics and evidence of its adoption. Within
forty-five (45) days of the end of the last calendar quarter of each year while
this Agreement is in effect, the president or a vice president of the Adviser
shall certify to the Trust that the Adviser has complied with the requirements
of Rule 17j-1 during the previous year and that there has been no violation of
the Adviser's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the written
request of the Trust, the Adviser shall submit to the Trust the reports required
to be made to the Adviser by Rule 17j-1(c)(1).
- 11 -
<PAGE>
E. The Adviser will promptly after filing with the
Securities and Exchange Commission an amendment to its Form ADV
furnish a copy of such amendment to the Trust and to the Manager.
F. Upon request of the Trust, the Adviser will provide
assistance to the Custodian in the collection of income due or payable to the
Fund. With respect to income from foreign sources, the Adviser will undertake
any reasonable procedural steps required to reduce, eliminate or reclaim
non-U.S. withholding taxes under the terms of applicable United States income
tax treaties.
G. The Adviser will immediately notify the Trust and the
Manager of the occurrence of any event which would disqualify the Adviser from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the Act or otherwise.
17. AMENDMENT. This Agreement may be amended at any time, but only
by written agreement between the Adviser and the Trust, which amendment, other
than amendments to Schedule A, is subject to the approval of the Board of
Trustees and the shareholders of the Fund in the manner required by the Act and
the rules thereunder, subject to any applicable exemptive order of the
Securities and Exchange Commission modifying the provisions of the Act with
respect to approval of amendments to this Agreement.
18. EFFECTIVE DATE; TERM. This Agreement shall become
effective on the date of its execution and shall remain in force
until January 30, 1998, and from year to year thereafter but only
- 12 -
<PAGE>
so long as such continuance is specifically approved at least annually by the
vote of a majority of the Trustees who are not interested persons of the Trust,
the Manager or the Adviser, cast in person at a meeting called for the purpose
of voting on such approval, and by a vote of the Board of Trustees or of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that this Agreement may be continued "annually" shall be construed
in a manner consistent with the Act and the rules and regulations thereunder.
19. TERMINATION. This Agreement may be terminated by either party
hereto, without the payment of any penalty, immediately upon written notice to
the other in the event of a breach of any provision thereof by the party so
notified, or otherwise upon sixty (60) days' written notice to the other, but
any such termination shall not affect the status, obligations or liabilities of
any party hereto to the other.
20. SHAREHOLDER LIABILITY. The Adviser is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Trust and agrees that obligations assumed by the
Trust pursuant to this Agreement shall be limited in all cases to the Fund and
its assets. The Adviser agrees that it shall not seek satisfaction of any such
obligations from the shareholders or any individual shareholder of the Fund, nor
from the Trustees or any individual Trustee of the Trust.
- 13 -
<PAGE>
21. DEFINITIONS. As used in paragraphs 14 and 18 of this
Agreement, the terms "assignment," interested person" and "vote
of a majority of the outstanding voting securities" shall have
the meanings set forth in the Act and the rules and regulations
thereunder.
22. APPLICABLE LAW. To the extent that state law is not
preempted by the provisions of any law of the United States
heretofore or hereafter enacted, as the same may be amended from
time to time, this Agreement shall be administered, construed and
enforced according to the laws of the State of Ohio.
MIDWEST GROUP FINANCIAL MIDWEST TRUST
SERVICES, INC.
By: /s/ Michael Andrews By: /s/ Robert H. Leshner
Title: President Title: President
Date: August 28, 1996 Date: August 28, 1996
ACCEPTANCE
The foregoing Agreement is hereby accepted.
ROGGE GLOBAL PARTNERS, plc
By: /s/ Olaf Rogge
Title: Director
Date: September 17, 1996
- 14 -
<PAGE>
SCHEDULE A
RECORDS TO BE MAINTAINED BY THE ADVISER
1. (Rule 31a-1(b)(5) and (6)) A record of each brokerage order, and all
other portfolio purchases or sales, given by the Adviser on behalf of
the Fund for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any
modification or cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf
of the Fund.
2. (Rule 31a-1(b)(9)) A record for each fiscal quarter, completed within
ten (10) days after the end of the quarter, showing specifically the
basis or bases upon which the allocation of orders for the purchase and
sale of portfolio securities to named brokers or dealers was effected,
and the division of brokerage commissions or other compensation on such
purchase and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or
dealers.
(ii) The supplying of services or benefits by brokers
or dealers to:
(a) The Trust;
(b) the Manager;
(c) the Adviser;
(d) any other portfolio adviser of the Trust;
and
(e) any person affiliated with the foregoing
persons.
(iii) Any other consideration other than the technical
qualifications of the brokers and dealers as
such.
- 15 -
<PAGE>
B. Shall show the nature of the services or benefits made
available.
C. Shall describe in detail the application of any general or
specific formula or other determinant used in arriving at such
allocation of purchase and sale orders and such division of
brokerage commissions or other compensation.
D. The name of the person responsible for making the
determination of such allocation and such division of
brokerage commissions or other compensation.
3. (Rule 31a-1(b)(10)) A record in the form of an appropriate
memorandum identifying the person or persons, committees or
groups authorizing the purchase or sale of portfolio
securities. Where an authorization is made by a committee
or group, a record shall be kept of the names of its members
who participate in the authorization. There shall be
retained as part of this record: any memorandum,
recommendation or instruction supporting or authorizing the
purchase or sale of portfolio securities and such other
information as is appropriate to support the authorization.*
4. (Rule 31a-1(f)) Such accounts, books and other documents as are
required to be maintained by registered investment advisers by rules
adopted under Section 204 of the Investment Advisers Act of 1940, to
the extent such records are necessary or appropriate to record the
Adviser's transactions with respect to the Fund.
- -------------
*Such information might include: the current Form 10-K, annual and
quarterly reports, press releases, reports by analysts and from brokerage firms
(including their recommendation; i.e., buy, sell, hold) or any internal reports
or portfolio adviser reviews.
- 16 -
ADMINISTRATION AGREEMENT
AGREEMENT entered into as of September 30, 1993, and amended as of
October 1, 1996, between Midwest Group Financial Services, Inc. ("Adviser") and
MGF Service Corp. ("MGF"), both of which are Ohio corporations having their
principal place of business at 312 Walnut Street, Cincinnati, Ohio 45202.
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and provides investment management services
under the terms of an investment advisory agreement (the "Management Agreement")
with Midwest Trust (the "Trust"); and
WHEREAS, the Trust has been organized as a Massachusetts business trust
to operate as an investment company registered under the Investment Company Act
of 1940; and
WHEREAS, the Adviser manages the business affairs of the Trust
pursuant to the Management Agreement; and
WHEREAS, the Adviser wishes to avail itself of the information, advice,
assistance and facilities of MGF to perform on behalf of the Trust the services
as hereinafter described; and
WHEREAS, MGF wishes to provide such services to the Adviser
under the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Adviser and MGF agree as follows:
1. EMPLOYMENT. The Adviser, being duly authorized, hereby
employs MGF to perform those services described in this Agreement. MGF shall
perform the obligations thereof upon the terms and conditions hereinafter
set forth.
2. TRUST ADMINISTRATION. Subject to the direction and control of the
Adviser, MGF shall assist the Adviser in supervising the Trust's business
affairs not otherwise supervised by other agents of the Trust. To the extent not
otherwise the primary responsibility of, or provided by, other agents of the
Trust, MGF shall supply (i) non-investment related statistical and research
data, (ii) internal regulatory compliance services, and (iii) executive and
administrative services. MGF shall supervise the preparation of (i) tax returns,
(ii) reports to shareholders of the Trust, (iii) reports to and filings with the
Securities and Exchange Commission, state securities commissions and Blue Sky
authorities including preliminary and definitive proxy materials and
post-effective amendments to the Trust's registration statement, and (iv)
necessary materials for meetings of the Trust's Board of Trustees unless
prepared by other parties under agreement.
- 1 -
<PAGE>
3. RECORDKEEPING AND OTHER INFORMATION. MGF shall create and maintain
all necessary records in accordance with all applicable laws, rules and
regulations, including but not limited to records required by Section 31(a) of
the Investment Company Act of 1940 and the rules thereunder, as the same may be
amended from time to time, pertaining to the various functions performed by it
and not otherwise created and maintained by another party pursuant to contract
with the Trust. Where applicable, such records shall be maintained by MGF for
the periods and in the places required by Rule 31a-2 under the Investment
Company Act of 1940.
4. AUDIT, INSPECTION AND VISITATION. MGF shall make available to the
Adviser during regular business hours all records and other data created and
maintained pursuant to the foregoing provisions of this Agreement for reasonable
audit and inspection by the Trust or any regulatory agency having authority over
the Trust.
5. COMPENSATION. For the performance of its obligations under this
Agreement, the Adviser shall pay MGF, with respect to each series of the Trust,
a fee each month equal to the annual rate of .1% of the average value of such
series' daily net assets. The Adviser is solely responsible for the payment of
fees to MGF, and MGF agrees to seek payment of its fees solely from the Adviser.
MGF shall not reimburse the Adviser for (or have deducted from its fees) any
Trust expenses in excess of expense limitations imposed by certain state
securities commissions having jurisdiction over the Trust.
6. LIMITATION OF LIABILITY. MGF shall not be liable for any action
taken, omitted or suffered to be taken by it in its reasonable judgment, in good
faith and believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement, or in accordance with instructions
from the Adviser, provided, however, that such acts or omissions shall not have
resulted from MGF's willful misfeasance, bad faith or gross negligence.
7. COMPLIANCE WITH THE INVESTMENT COMPANY ACT OF 1940. The parties
hereto acknowledge and agree that nothing contained herein shall be construed to
require MGF to perform any services for the Adviser which services could cause
MGF to be deemed an "investment adviser" of the Trust within the meaning of
Section 2(a)(20) of the Investment Company Act of 1940 or to supercede or
contravene the Prospectus or Statement of Additional Information of the Trust or
any provisions of the Investment Company Act of 1940 and the rules thereunder.
- 2 -
<PAGE>
8. TERMINATION. This Agreement may be terminated by either party upon
sixty (60) days' written notice to the other party. This Agreement shall
terminate automatically in the event of termination of the Management Agreement.
Upon the termination of this Agreement, the Adviser shall pay MGF such
compensation as may be payable for the period prior to the effective date of
such termination.
9. NO TRUST LIABILITY. MGF is hereby expressly put on notice that the
Trust is not a contracting party to this Agreement and assumes no obligations
pursuant to this Agreement. MGF shall seek satisfaction of any obligations
arising out of this Agreement only from the Adviser, and not from the Trust nor
its Trustees, officers, employees or shareholders. MGF shall not act as agent
for or bind either the Adviser or the Trust in any matter.
10. MISCELLANEOUS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the 1st day of October, 1996.
MIDWEST GROUP FINANCIAL SERVICES, INC.
By: /s/ Michael F. Andrews
MGF SERVICE CORP.
By: /s/ Robert G. Dorsey
- 3 -
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
use in this Post-Effective Amendment No. 65 of our report dated
November 6, 1996 and to all references to our Firm included in
or made a part of this Post-Effective Amendment.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
January 31, 1997
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<NAME> GLOBAL BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 17,784,437
<INVESTMENTS-AT-VALUE> 18,110,218
<RECEIVABLES> 2,199,044
<ASSETS-OTHER> 354,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,663,522
<PAYABLE-FOR-SECURITIES> 1,874,374
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100,455
<TOTAL-LIABILITIES> 1,974,829
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,929,671
<SHARES-COMMON-STOCK> 1,164,325
<SHARES-COMMON-PRIOR> 1,249,309
<ACCUMULATED-NII-CURRENT> 287,907
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 155,206
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 315,909
<NET-ASSETS> 12,841,443
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,239,101
<OTHER-INCOME> 0
<EXPENSES-NET> 301,227
<NET-INVESTMENT-INCOME> 937,874
<REALIZED-GAINS-CURRENT> (329,223)
<APPREC-INCREASE-CURRENT> 219,428
<NET-CHANGE-FROM-OPS> 828,079
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 173,473
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 202,237
<NUMBER-OF-SHARES-REDEEMED> 302,506
<SHARES-REINVESTED> 15,285
<NET-CHANGE-IN-ASSETS> (455,178)
<ACCUMULATED-NII-PRIOR> 8,355
<ACCUMULATED-GAINS-PRIOR> 51,363
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 137,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 324,331
<AVERAGE-NET-ASSETS> 13,898,529
<PER-SHARE-NAV-BEGIN> 10.64
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> (.05)
<PER-SHARE-DIVIDEND> .13
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.03
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000066117
<NAME> MIDWEST TRUST
<SERIES>
<NUMBER> 73
<NAME> GLOBAL BOND FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 17,784,437
<INVESTMENTS-AT-VALUE> 18,110,218
<RECEIVABLES> 2,199,044
<ASSETS-OTHER> 354,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,663,522
<PAYABLE-FOR-SECURITIES> 1,874,374
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 100,455
<TOTAL-LIABILITIES> 1,974,829
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,929,671
<SHARES-COMMON-STOCK> 535,423
<SHARES-COMMON-PRIOR> 426,839
<ACCUMULATED-NII-CURRENT> 287,907
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 155,206
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 315,909
<NET-ASSETS> 5,847,250
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,239,101
<OTHER-INCOME> 0
<EXPENSES-NET> 301,227
<NET-INVESTMENT-INCOME> 937,874
<REALIZED-GAINS-CURRENT> (329,223)
<APPREC-INCREASE-CURRENT> 219,428
<NET-CHANGE-FROM-OPS> 828,079
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 51,783
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 187,748
<NUMBER-OF-SHARES-REDEEMED> 83,836
<SHARES-REINVESTED> 4,672
<NET-CHANGE-IN-ASSETS> 1,328,827
<ACCUMULATED-NII-PRIOR> 8,355
<ACCUMULATED-GAINS-PRIOR> 51,363
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 137,065
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 324,331
<AVERAGE-NET-ASSETS> 5,677,972
<PER-SHARE-NAV-BEGIN> 10.59
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> (.08)
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Amended May 28, 1996
AMENDED RULE 18f-3 PLAN ADOPTED WITH RESPECT TO THE MULTIPLE
CLASS DISTRIBUTION SYSTEM OF THE MIDWEST GROUP OF FUNDS
Midwest Trust, Midwest Group Tax Free Trust and Midwest Strategic Trust
(the "Trusts") have each adopted this Plan pursuant to Rule 18f-3 promulgated
under the Investment Company Act of 1940 (the "1940 Act"). The individual series
of the Trusts which are not money market funds are referred to collectively, in
whole or in part, as the context requires, as the "Funds." The individual series
of the Trusts which are money market funds are referred to collectively, in
whole or in part, as the context requires, as the "Money Market Funds." The
Funds and the Money Market Funds are referred to collectively, in whole or in
part, as the context requires, as the "Midwest Funds." Each Trust is an open-end
management investment company registered under the 1940 Act. Midwest Group
Financial Services, Inc. (the "Distributor") provides investment advisory and
management services to each of the Midwest Funds and acts as principal
underwriter for the Midwest Funds.
This Plan permits the Funds to issue and sell up to three classes of
shares and the Money Market Funds to issue and sell up to two classes of shares
for the purpose of establishing a multiple class distribution system (the
"Multiple Class Distribution System"). The Plan further permits the Funds to
assess a contingent deferred sales charge ("CDSC") on certain redemptions of a
class of the Funds' shares and to waive the CDSC in certain instances. These
guidelines set forth the conditions
<PAGE>
pursuant to which the Multiple Class Distribution System will operate and the
duties and responsibilities of the Trustees of each Trust with respect to
the Multiple Class Distribution System.
DESCRIPTION OF THE MULTIPLE CLASS DISTRIBUTION SYSTEM
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE FUNDS. The Multiple Class
Distribution System enables each Fund to offer investors the option of
purchasing shares in one of three manners: (1) subject to a conventional
front-end sales load and a distribution fee not to exceed .35% of average net
assets (Class A shares); (2) subject to either no front-end sales load or a
front-end sales load which is smaller than the sales load on Class A shares, and
in addition subject to a distribution fee and service fee of up to 1% of average
net assets (Class B shares); or (3) subject to a CDSC and a distribution fee and
service fee of up to 1% of average net assets (Class C shares).
The actual creation and issuance of multiple classes of shares will be
made on a Fund-by-Fund basis, and some Funds may not in fact create or issue any
new classes of shares or may create or issue only two of the three classes of
shares described herein.
The three classes will each represent interests in the same portfolio
of investments of such Fund. The three classes will be identical except that (i)
the distribution fees payable by a Fund attributable to each class pursuant to
the distribution plans adopted by the Funds in accordance with Rule 12b-1 under
the 1940
- 2 -
<PAGE>
Act will be higher for Class B shares and Class C shares than for
Class A shares; (ii) each class may bear different Class Expenses (as defined
below); (iii) each class will vote separately as a class with respect to a
Fund's Rule 12b-1 distribution plan; (iv) each class has different exchange
privileges; and (v) each class may bear a different name or designation.
Investors purchasing Class A shares will do so at net asset value plus
a front-end sales load in the traditional manner. The sales load may be subject
to reductions for larger purchases, under a combined purchase privilege, under a
right of accumulation or under a letter of intent. The sales load may be subject
to certain other reductions permitted by Section 22(d) of the 1940 Act and set
forth in the registration statement of each Trust. The public offering price for
the Class A shares will be computed in accordance with Rule 22c-1, Section 22(d)
and other relevant provisions of the 1940 Act and the rules and regulations
thereunder. Each Fund will also pay a distribution fee pursuant to the Fund's
Rule 12b-1 distribution plan at an annual rate of up to .35% of 1% of the
average daily net asset value of the Class A shares.
Investors purchasing Class B shares of a Fund will do so at either net
asset value without a front-end sales load or at net asset value plus a
front-end sales load which is less than the front-end sales load applicable to
Class A shares of such Fund. The sales load on Class B shares, if any, may be
subject to reductions for larger purchases, under a combined purchase privilege
or under a letter of intent. The public offering price for the Class B shares
will be computed in accordance with Rule
- 4 -
<PAGE>
22c-1, Section 22(d) and other relevant provisions of the 1940 Act and the rules
and regulations thereunder. Each Fund will also pay a distribution fee pursuant
to the Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the
average daily net asset value of the Class B shares.
Investors purchasing Class C shares will do so at net asset value per
share without the imposition of a sales load at the time of purchase. Each Fund
will pay a distribution fee pursuant to the distribution plan at an annual rate
of up to 1% of the average daily net asset value of the Class C shares. In
addition, an investor's proceeds from a redemption of Class C shares made
within a specified period of time of their purchase generally will be subject
to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5%
(but may be higher or lower) on shares redeemed during the first year after
purchase and will be reduced at a rate of 1% (but may be higher or lower) per
year over the CDSC period, so that redemptions of shares held after that
period will not be subject to a CDSC. The CDSC will be made subject to the
conditions set forth below. The Class C alternative is designed to permit the
investor to purchase Class C shares without the assessment of a front-end sales
load and at the same time permit the Distributor to pay financial
intermediaries selling shares of each Fund a commission on the sale of the
Class C shares.
Under the Trusts' distribution plans, the Distributor will not be
entitled to any specific percentage of the net asset value of each class of
shares of the Funds or other specific amount.
- 5 -
<PAGE>
As described above, each Fund will pay a distribution fee pursuant to its
distribution plan at an annual rate of up to .35% of the average daily net
assets of such Fund's Class A shares and up to 1% of the average daily net asset
value of such Fund's Class B shares and Class C shares. Under the Trusts'
distribution plans, payments will be made for expenses incurred in providing
distribution-related services (including, in the case of the Class C shares,
commission expenses as described in more detail below). Each Fund will accrue at
a rate (but not in excess of the applicable maximum percentage rate) which is
reviewed by each Trust's Board of Trustees quarterly. Such rate is intended to
provide for accrual of expenses at a rate that will not exceed the unreimbursed
amounts actually expended for distribution by a Fund. If at any time the amount
accrued by a Fund would exceed the amount of distribution expenses incurred with
respect to such Fund during the fiscal year (plus, in the case of Class C
shares, prior unreimbursed commission-related expenses), then the rate of
accrual will be adjusted accordingly. In no event will the amount paid by the
Funds exceed the unreimbursed expenses previously incurred in providing
distribution-related services.
Proceeds from the distribution fee and, in the case of Class C shares,
the CDSC, will be used to compensate financial intermediaries with a service fee
based upon a percentage of the average daily net asset value of the shares
maintained in the Funds by their customers and to defray the expenses of the
Distributor with respect to providing distribution related
- 6 -
<PAGE>
services, including commissions paid on the sale of Class C shares.
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE MONEY MARKET FUNDS. The
Multiple Class Distribution System enables each Money Market Fund to offer
investors the option of purchasing shares in one of two manners: (1) subject to
a distribution fee not to exceed .35% of average net assets (Class A, or
"Retail" shares); or (2) subject to no distribution fee with a higher minimum
initial investment requirement (Class B, or "Institutional" shares).
The actual creation and issuance of multiple classes of shares will be
made on a fund-by-fund basis, and some Money Market Funds may not in fact create
or issue any new class of shares described herein.
The two classes will each represent interests in the same portfolio of
investments of such Money Market Fund. The two classes will be identical except
that (i) Retail shares will be subject to distribution fees pursuant to the
distribution plans adopted by the Money Market Funds in accordance with Rule
12b-1 under the 1940 Act, (ii) each class may bear different Class Expenses (as
defined below); (iii) each class has exclusive voting rights with respect to
matters affecting only that class; and (iv) each class may bear a different name
or designation.
Investors purchasing Retail shares will do so at net asset value. Each
Retail share will also pay a distribution fee pursuant to the Money Market
Fund's Rule 12b-1 distribution plan
- 7 -
<PAGE>
at an annual rate of up to .35% of 1% of the average daily net asset value of
the Retail shares.
Investors purchasing Institutional shares of a Money Market
Fund will do so at net asset value. Each Institutional share
will not be subject to any distribution fees.
Under the Trusts' distribution plans, the Distributor will not be
entitled to any specific percentage of the net asset value of Retail shares or
other specific amount. As described above, eacc class of Retail shares will pay
a distribution fee pursuant to its distribution plan at an annual rate of up to
.35% of the average daily net assets of such Money Market Fund's Retail shares.
Under the Trusts' distribution plans, payments will be made for expenses
incurred in providing distribution-related services. Retail shares will accrue
distribution expenses at a rate (but not in excess of the applicable maximum
percentage rate) which is reviewed by each Trust's Board of Trustees quarterly.
Such rate is intended to provide for accrual of expenses at a rate that will not
exceed the unreimbursed amounts actually expended for distribution by Retail
shares. If at any time the amount accrued by Retail shares would exceed the
amount of distribution expenses incurred with respect to such Retail shares
during the fiscal year, then the rate of accrual will be adjusted accordingly.
In no event will the amount paid by Retail shares exceed the unreimbursed
expenses previously incurred in providing distribution-related services.
Proceeds from the distribution fee will be used to compensate financial
- 8 -
<PAGE>
intermediaries with a service fee based upon a percentage of the average daily
net asset value of the Retail shares maintained by their customers and to defray
the expenses of the Distributor with respect to providing distribution related
services.
GENERAL. All classes of shares of each Midwest Fund will have identical
voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except for the differences mentioned above.
Under the Multiple Class Distribution System, the Board of Trustees
could determine that any of certain expenses attributable to the shares of a
particular class of shares will be borne by the class to which they were
attributable ("Class Expenses"). Class Expenses are limited to (a) transfer
agency fees identified by the Trusts as being attributable to a class of shares;
(b) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxy statements to
current shareholders of a specific class; (c) SEC and Blue Sky registration fees
incurred by a class of shares; (d) the expenses of administrative personnel and
services as required to support the shareholders of a specific class; (e)
litigation or other legal expenses relating to a specific class of shares; (f)
Trustees' fees or expenses incurred as a result of issues relating to a specific
class of shares; (g) accounting fees and expenses relating to a specific class
of shares; and (h) additional incremental expenses not
- 9 -
<PAGE>
specifically identified above that are subsequently identified and determined to
be properly allocated to one class of shares and approved by the Board of
Trustees.
Under the Multiple Class Distribution System, certain expenses could be
attributable to more than one Midwest Fund ("Midwest Fund Expenses"). All such
Midwest Fund Expenses would be first allocated among Midwest Funds, based on the
aggregate net assets of such Midwest Funds, and then borne on such basis by each
Midwest Fund and without regard to class. Expenses that were attributable to a
particular Midwest Fund but not to a particular class thereof ("Series
Expenses"), would be borne by each class on the basis of the net assets of such
class in relation to the aggregate net assets of the Midwest Fund. In addition
to distribution fees, Class Expenses may be applied to the shares of a
particular class. Any additional Class Expenses not specifically identified
above in the preceding paragraph which are subsequently identified and
determined to be properly applied to one class of shares shall not be so applied
until approved by the Board of Trustees.
Subject to the approval of the Board of Trustees, certain expenses may
be applied differently if their current application becomes no longer
appropriate. For example, if a Class Expense is no longer attributable to a
specific class, it may be charged to the applicable Midwest Fund or Midwest
Funds, as appropriate. In addition, if application of all or a portion of a
particular expense to a class is determined by the Internal Revenue Service
- 10 -
<PAGE>
or counsel to the Trusts to result in a preferential dividend for which,
pursuant to Section 562(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), a Midwest Fund would not be entitled to a dividends paid deduction, all
or a portion of the expense may be treated as a Series Expense or a Midwest Fund
Expense. Similarly, if a Midwest Fund Expense becomes attributable to a specific
Midwest Fund it may be treated as a Series Expense.
Because of the varying distribution fees and Class Expenses that may be
borne by each class of shares, the net income of (and dividends payable with
respect to) each class may be different from the net income of (and dividends
payable with respect to) the other classes of shares of a Midwest Fund.
Dividends paid to holders of each class of shares in a Midwest Fund would,
however, be declared and paid on the same days and at the same times and, except
as noted with respect to the varying distribution fees and Class Expenses would
be determined and paid in the same manner. To the extent that a Fund has
undistributed net income, the net asset value per share of each class of such
Fund's shares will vary.
Each Midwest Fund will briefly describe the salient features of the
Multiple Class Distribution System in its prospectus. Each Midwest Fund will
disclose in its prospectus the respective expenses, performance data,
distribution arrangements, services, fees, sales loads, deferred sales loads and
exchange privileges applicable to each class of shares offered through that
prospectus. The shareholder reports of each Midwest Fund will
- 11 -
<PAGE>
disclose the respective expenses and performance data applicable to each class
of shares. The shareholder reports will contain, in the statement of assets and
liabilities and statement of operations, information related to the Midwest Fund
as a whole generally and not on a per class basis. Each Midwest Fund's per share
data, however, will be prepared on a per class basis with respect to all classes
of shares of such Midwest Fund. The information provided by the Distributor for
publication in any newspaper or similar listing of the Funds' net asset values
and public offering prices will separately present Class A, Class B and Class C
shares.
The Class C alternative is designed to permit the investor to purchase
Class C shares without the assessment of a front-end sales load and at the same
time permit the Distributor to pay financial intermediaries selling shares of
the Funds a commission on the sale of the Class C shares. Proceeds from the
distribution fee and the CDSC will be used to compensate financial
intermediaries with a service fee and to defray the expenses of the Distributor
with respect to providing distribution related services, including commissions
paid on the sale of Class C shares.
The CDSC will not be imposed on redemptions of shares which were
purchased more than a specified period, up to six years (the "CDSC Period")
prior to their redemption. The CDSC will be imposed on the lesser of the
aggregate net asset value of the shares being redeemed either at the time of
purchase or
- 12 -
<PAGE>
redemption. No CDSC will be imposed on shares acquired through reinvestment of
income dividends or capital gains distributions. In determining whether a CDSC
is applicable, unless the shareholder otherwise specifically directs, it will be
assumed that a redemption is made first of any Class C shares derived from
reinvestment of distributions, second of Class C shares held for a period longer
than the CDSC Period, third of any class B shares in the shareholder's account,
fourth of any Class A shares in the shareholder's account, and fifth of Class C
shares held for a period not longer than the CDSC Period.
In addition, the Funds will waive the CDSC on redemptions following the
death or disability of a shareholder as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986. The Distributor will require satisfactory proof
of death or disability before it determines to waive the CDSC. In cases of death
or disability, the CDSC may be waived where the decedent or disabled person is
either an individual shareholder or owns the shares with his or her spouse as a
joint tenant with rights of survivorship if the redemption is made within one
year of death or initial determination of disability.
Under the Multiple Class Distribution System, Class A shares and Class
B shares of a Midwest Fund (including Retail shares and Institutional shares of
a Money Market Fund) will be exchangeable for (a) Class A shares of the other
Funds, (b) Class B shares of the other Funds, (c) shares of the Money Market
Funds and (d) shares of any Midwest Fund which offers only one class of shares
(provided such Midwest Fund does not impose a CDSC) on the basis
- 13 -
<PAGE>
of relative net asset value per share, plus an amount equal to the difference,
if any, between the sales charge previously paid on the exchanged shares and
sales charge payable at the time of the exchange on the acquired shares.
Class C shares of a Fund will be exchangeable for (a) Class C shares of
the other Funds, (b) shares of the Money Market Funds and (c) shares of any Fund
which offers only one class of shares and which imposes a CDSC on the basis of
relative net asset value per share. A Fund will "tack" the period for which
original Class C shares were held onto the holding period of the acquired Class
C shares for purposes of determining what, if any, CDSC is applicable in the
event that the acquired Class C shares are redeemed following the exchange. In
the event of redemptions of shares after an exchange, an investor will be
subject to the CDSC of the Fund with the longest CDSC period and/or highest CDSC
schedule which may have been owned by him or her, resulting in the greatest CDSC
payment. The period of time that Class C shares are held in a Money Market Fund
will not count toward the CDSC holding period. The Midwest Funds will comply
with Rule 11a-3 under the 1940 Act as to any exchanges.
LEGAL ANALYSIS
The Board of Trustees of each Trust has determined to rely on Rule
18f-3 under the 1940 Act and to discontinue reliance on an Order previously
received from the Securities and Exchange Commission (the "SEC") exempting the
Midwest Funds from the provisions of Sections 18(f), 18(g) and 18(i) of the 1940
Act to
- 14 -
<PAGE>
the extent that the issuance and sale of multiple classes of shares representing
interests in the same Midwest Fund might be deemed: (a) to result in a "senior
security" within the meaning of Section 18(g); (b) prohibited by Section 18(f);
and (c) to violate the equal voting provisions of Section 18(i).
The Distributor believes that the Multiple Class Distribution System
as described herein will better enable the Midwest Funds to meet the competitive
demands of today's financial services industry. Under the Multiple Class
Distribution System, an investor will be able to choose the method of purchasing
shares that is most beneficial given the amount of his or her purchase, the
length of time the investor expects to hold his or her shares, and other
relevant circumstances. The System permits the Midwest Funds to facilitate both
the distribution of their securities and provide investors with a broader choice
as to the method of purchasing shares without assuming excessive accounting and
bookkeeping costs or unnecessary investment risks.
The allocation of expenses and voting rights relating to the Rule 12b-1
plans in the manner described is equitable and does not discriminate against any
group of shareholders. In addition, such arrangements should not give rise to
any conflicts of interest because the rights and privileges of each class of
shares are substantially identical.
The Distributor believes that the Multiple Class Distribution System
will not increase the speculative character
- 15 -
<PAGE>
of the shares of the Midwest Funds. The Multiple Class Distribution System does
not involve borrowing, nor will it affect the Midwest Funds' existing assets or
reserves, and does not involve a complex capital structure. Nothing in the
Multiple Class Distribution System suggests that it will facilitate control by
holders of any class of shares.
The Distributor believes that the ability of the Funds to implement
the CDSC is appropriate in the public interest, consistent with the protection
of investors, and consistent with the purposes fairly intended by the policy and
provisions of the 1940 Act. The CDSC arrangement will provide shareholders the
option of having their full payment invested for them at the time of their
purchase of shares of the Funds with no deduction of a sales charge.
CONDITIONS OF OPERATING UNDER THE MULTIPLE CLASS DISTRIBUTION SYSTEM
The operation of the Multiple Class Distribution System shall at all
times be in accordance with Rule 18f-3 under the 1940 Act and all other
applicable laws and regulations, and in addition, shall be subject to the
following conditions:
1. Each class of shares will represent interests in the same portfolio
of investments of a Midwest Fund, and be identical in all material respects,
except as set forth below. The only differences among the various classes of a
Midwest Fund will relate solely to: (a) the impact of the disproportionate Rule
12b-1 distribution plan payments allocated to each of the Class A
- 16 -
<PAGE>
shares, Class B shares or Class C shares of a Fund; (b) the impact of the Rule
12b-1 distribution plan payments imposed on Retail shares but not Institutional
shares of a Money Market Fund; (c) Class Expenses, which are limited to (i)
transfer agency fees (including the incremental cost of monitoring a CDSC
applicable to a specific class of shares), (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a specific class, (iii) SEC
and Blue Sky registration fees incurred by a class of shares, (iv) the expenses
of administrative personnel and services as required to support the shareholders
of a specific class, (v) litigation or other legal expenses relating to a
specific class of shares, (vi) Trustees' fees or expenses incurred as a result
of issues relating to a specific class of shares, and (vii) accounting fees and
expenses relating to a specific class of shares; (d) the fact that each class
will vote separately as a class with respect to the Rule 12b-1 distribution
plans or any other matter affecting only that class; (e) the different exchange
privileges of the various classes of shares; and (f) the designation of each
class of shares of the Midwest Funds. Any additional incremental expenses not
specifically identified above that are subsequently identified and determined to
be properly allocated to one class of shares shall not be so allocated until
approved by the Board of Trustees.
- 17 -
<PAGE>
2. The Trustees of each Trust, including a majority of the Trustees who
are not interested persons of the Trust, have approved this Plan as being in the
best interests of each class individually and each Midwest Fund as a whole. In
making this finding, the Trustees evaluated the relationship among the classes,
the allocation of expenses among the classes, potential conflicts of interest
among classes, and the level of services provided to each class and the cost of
those services.
3. Any material changes to this Plan, including but not limited to a
change in the method of determining Class Expenses that will be applied to a
class of shares, will be reviewed and approved by votes of the Board of Trustees
of each Trust, including a majority of the Trustees who are not interested
persons of the Trust.
4. On an ongoing basis, the Trustees of each of the Trusts, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will monitor
each Midwest Fund for the existence of any material conflicts between the
interests of the classes of shares. The Trustees, including a majority of the
Trustees who are not interested persons of the Trust, shall take such action as
is reasonably necessary to eliminate any such conflicts that may develop. The
Distributor will be responsible for reporting any potential or existing
conflicts to the Trustees. If a conflict arises, the Distributor at its own cost
will remedy such conflict up to and including establishing a new registered
management investment company.
- 18 -
<PAGE>
5. The Trustees of each Trust will receive quarterly and annual
Statements complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be
amended from time to time. In the Statements, only distribution expenditures
properly attributable to the sale of a class of shares will be used to support
the Rule 12b-1 fee charged to shareholders of such class of shares. Expenditures
not related to the sale of a particular class will not be presented to the
Trustees to justify any fee attributable to that class. The Statements,
including the allocations upon which they are based, will be subject to the
review and approval of the independent Trustees in the exercise of their
fiduciary duties.
6. Dividends paid by a Midwest Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount,
except that distribution fee payments and Class Expenses relating to each
respective class of shares will be borne exclusively by that class.
7. Applicants have established the manner in which the net asset value
of the multiple classes of shares will be determined and the manner in which
dividends and distributions will be paid. Attached hereto as Exhibit A is a
procedures memorandum and worksheets with respect to the methodology and
procedures for calculating the net asset value and dividends and distributions
of the various classes and the proper allocation of income and expenses among
the classes.
- 19 -
<PAGE>
8. The Distributor represents that it has in place, and will continue
to maintain, adequate facilities in place to ensure implementation of the
methodology and procedures for calculating the net asset value and dividends and
distributions among the various classes of shares.
9. If a Midwest Fund offers separate classes of shares through separate
prospectuses, each such prospectus will disclose (i) that the Midwest Fund
issues other classes, (ii) that those other classes may have different sales
charges and other expenses, which may affect performance, (iii) a telephone
number investors may call to obtain more information concerning the other
classes available to them through their sales representative, and (iv) that
investors may obtain information concerning those classes from their sales
representative or the Distributor.
10. The Distributor has adopted compliance standards as to when Class
A, Class B and Class C shares may appropriately be sold to particular investors.
The Distributor will require all persons selling shares of the Midwest Funds to
agree to conform to such standards.
11. Each Midwest Fund will briefly describe the salient features of the
Multiple Class Distribution System in its prospectus. Each Midwest Fund will
disclose in its prospectus the respective expenses, performance data,
distribution arrangements, services, fees, sales loads, deferred sales loads and
exchange privileges applicable to each class of shares offered through that
prospectus. Each Midwest Fund will disclose
- 20 -
<PAGE>
the respective expenses and performance data applicable to each class of shares
in every shareholder report. The shareholder reports will contain, in the
statement of assets and liabilities and statement of operations, information
related to the Midwest Fund as a whole generally and not on a per class basis.
Each Midwest Fund's per share data, however, will be prepared on a per class
basis with respect to all classes of shares of such Midwest Fund. The
information provided by the Trusts for publication in any newspaper or similar
listing of the Funds' net asset values and public offering prices will
separately present Class A, Class B and Class C shares.
12. The Trusts will comply with the provisions of Rule 6c-10 under the
1940 Act, IC-20916 (February 23, 1995), as such rule is currently adopted and as
it may be amended.
<PAGE>
EXHIBIT A
MIDWEST TRUST
MIDWEST STRATEGIC TRUST
MIDWEST GROUP TAX FREE TRUST
MULTIPLE-CLASS FUNDS
METHODOLOGY, PROCEDURES
AND
INTERNAL ACCOUNTING CONTROLS
<PAGE>
INTRODUCTION
Midwest Trust, Midwest Group Tax Free Trust and Midwest Strategic Trust
(the "Trusts") are Massachusetts business trusts registered under the Investment
Company Act of 1940 as open-end management investment companies. Midwest Group
Financial Services, Inc. (the "Distributor") acts as the investment manager to
each Midwest Fund and serves as each Midwest Fund's principal underwriter. The
Distributor is a subsidiary of Leshner Financial, Inc. The Trusts presently
offer the following series of shares (collectively, the "Funds") representing
interests in separate investment portfolios:
Midwest Strategic Trust Midwest Group Tax Free Trust
U.S. Government Securities Fund Tax-Free Intermediate Term Fund
Treasury Total Return Fund Ohio Insured Tax-Free Fund
*Utility Fund
*Equity Fund
Midwest Trust
Intermediate Term Government Income Fund
*Global Bond Fund
Adjustable Rate U.S. Government Securities Fund
* Periodic (non-daily) dividend Funds
Each Fund may offer multiple classes of shares as more fully described
in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System would
enable each Fund to offer investors the option of purchasing shares in one of
three manners: (1) subject to a conventional front-end sales load and a
distribution fee not to exceed .35% of average net assets (Class A shares); (2)
subject to either no front-end sales load or to a front-end sales load which is
smaller than the sales load on Class A shares, and also subject to a
distribution fee and service fee of up to 1% of average net assets (Class B
shares); or (3) subject to a contingent deferred sales charge and a distribution
fee and service fee of up to 1% of average net assets (Class C shares). Each of
the Funds which invests primarily in domestic debt securities intends that
substantially all net investment income will be declared as a dividend daily and
paid monthly. Each of the Funds designated by an asterisk in the above chart
declares and pays net investment income at the end of each calendar quarter
(such Funds are referred to herein as "periodic dividend Funds"). Future series
of the Trusts may declare dividends daily or periodically. The Funds and any
future series of the Trusts will declare and pay substantially all net realized
gains, if any, at least annually.
Midwest Group Tax Free Trust presently offers the following series of
shares (collectively, the "Money Market Funds") representing interests in
separate investment portfolios.
Midwest Group Tax Free Trust
Royal Palm Florida Tax-Free Money Fund
Ohio Tax-Free Money Fund
- 1 -
<PAGE>
Each Money Market Fund may offer two classes of shares as more fully
described in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System
would enable each Money Market Fund to offer investors the option of purchasing
shares in one of two manners: (1) subject to a distribution fee not to exceed
.35% of average net assets (Retail shares); or (2) subject to no distribution
fee with a higher minimum initial investment requirement (Institutional shares).
Each of the Money Market Funds intends that substantially all net investment
income will be declared as a dividend daily and paid monthly.
Pursuant to an Accounting Services Agreement, MGF Service Corp. ("MGF")
maintains the Midwest Funds' accounting records and performs the daily
calculations of each Midwest Fund's net asset value. Thus the procedures and
internal accounting controls for the Midwest Funds include the participation of
MGF.
The internal accounting control environment at MGF provides for minimal
risk of error. This has been accomplished through the use of competent and
well-trained employees, adequate facilities and established internal accounting
control procedures.
Additional procedures and internal accounting controls have been
designed for the multiple class funds. These procedures and internal accounting
controls have been reviewed by management of the Trusts and MGF to ensure that
the risks associated with multiple- class funds are adequately addressed.
The specific internal accounting control objectives and the related
methodology, procedures and internal accounting controls to achieve these stated
objectives are outlined below.
METHODOLOGY, PROCEDURES AND INTERNAL
ACCOUNTING CONTROLS FOR MULTIPLE-CLASS FUNDS
The three internal accounting control objectives to be achieved are:
(1) The daily net asset value for all classes of shares of
each Midwest Fund is accurately calculated.
(2) Recorded expenses of a Midwest Fund are properly allocated
between each class of shares.
(3) Dividend distributions are accurately calculated for each
class of shares.
1. Control Objective
The daily net asset value for all classes of shares of each Midwest
Fund is accurately calculated.
- 2 -
<PAGE>
Methodology, Procedures and Internal Accounting Controls
---------------------------------------------------------
a. Securities of the Funds will be valued daily at their current
market value by a reputable pricing source. Security positions
will be reconciled from the Trusts' records and to custody
records and reviewed for completeness and accuracy.
b. Securities of the Money Market Funds will be valued daily on
an amortized cost basis in accordance with written procedures
adopted pursuant to Rule 2a-7 of the 1940 Act.
c. Prepaid and intangible assets will be amortized over their
estimated useful lives. These assets will be reviewed monthly
to ensure a proper presentation and amortization during the
period.
d. Investment income, realized and unrealized gains or losses
will be calculated daily from MGF's portfolio system and
reconciled to the general ledger. Yields and fluctuations in
security prices will be monitored on a daily basis by MGF
personnel. Interest and dividend receivable amounts will be
reconciled to holdings reports.
e. An estimate of all expenses for each Midwest Fund will be
accrued daily. Daily expense accruals will be reviewed and
revised, as required, to reflect actual payments made to
vendors.
f. Capital accounts for each class of shares will be updated
based on daily share activity and reconciled to transfer
agent reported outstanding shares.
g. All balance sheet asset, liability and capital accounts
will be reconciled to subsidiary records for completeness
and accuracy.
h. For each Midwest Fund, a pricing worksheet (see attached
example) will be prepared daily which calculates the net
asset value of settled shares by class (for the Money
Market Funds and the other daily dividend funds) or net
asset value of outstanding shares (for periodic dividend
funds) and the percentage of net asset value of such class
to the total of all classes of shares. Investment income
and joint expenses will be allocated by class of shares
according to such percentages. Realized and unrealized
gains will be allocated by class of shares according to
such percentages.
i. Prior day net assets by class will be rolled forward to
current day net assets by class of shares by adjusting for
current day income, expense and distribution activity.
(There may or may not be distribution activity in the
periodic dividend funds.) Net assets by class of shares
- 3 -
<PAGE>
will then be divided by the number of outstanding shares for
each class to obtain the net asset value per share. Net asset
values will be reviewed and approved by supervisors.
j. Net asset values per share of the different classes of shares
for daily dividend funds should be identical except with
respect to possible differences attributable to rounding.
Differences, if any, will be investigated by the accounting
supervisor.
k. Net asset values per share of the different classes of shares
for the periodic dividend funds may be different as a result
of accumulated income between distribution dates and the
effect of class specific expenses. Other differences, if any,
will be investigated by the accounting supervisor.
2. Control Objective
Recorded expenses of a Midwest Fund are properly allocated between each
class of shares.
Methodology, Procedures and Internal Accounting Controls
---------------------------------------------------------
a. Expenses will be classified as being either joint or class
specific on the pricing worksheet.
b. Certain expenses will be attributable to more than one
Midwest Fund. Such expenses will be first allocated among
the Midwest Funds, based on the aggregate net assets of
such Midwest Funds, and then borne on such basis by each
Midwest Fund and without regard to class. These expenses
could include, for example, Trustees' fees and expenses,
unallocated audit and legal fees, insurance premiums,
expenses relating to shareholder reports and printing
expenses. Expenses that are attributable to a particular
Midwest Fund but not to a particular class thereof will be
borne by each class on the basis of the net assets of such
class in relation to the aggregate net assets of the
Midwest Fund. These expenses could include, for example,
advisory fees and custodian fees, and fees related to the
preparation of separate documents for current shareholders
of a particular Midwest Fund.
c. Class specific expenses are those identifiable with each
individual class of shares. These expenses include 12b-1
distribution fees; transfer agent fees as identified by
MGF Service Corp. as being attributable to a specific
class; printing and postage expenses related to preparing
and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a
particular class; SEC and Blue Sky registration fees; the
expenses of administrative personnel and services required
- 4 -
<PAGE>
to support the shareholders of a specific class; litigation or
other legal expenses relating solely to one class of shares;
Trustees' fees incurred as a result of issues relating to one
class of shares; and accounting fees and expenses relating to
a specific class of shares.
d. Joint expenses will be allocated daily to each class of shares
based on the percentage of the net asset value of shares of
such class to the total of the net asset value of shares of
all classes of shares. Class specific expenses will be charged
to the specific class of shares. Both joint expenses and class
specific expenses are compared against expense projections.
e. The total of joint and class specific expense limits will
be reviewed to ensure that voluntary or contractual
expense limits are not exceeded. Amounts will be adjusted
to ensure that any limits are not exceeded. Expense
waivers and reimbursements will be calculated and
allocated to each class of shares based upon the pro rata
percentage of the net assets of a Midwest Fund as of the
end of the prior day, adjusted for the previous day's
share activity.
f. Each Fund and class will accrue distribution expenses at a
rate (but not in excess of the applicable maximum
percentage rate) which will be reviewed by the Board of
Trustees on a quarterly basis. Such distribution expenses
will be calculated at an annual rate not to exceed .25%
(except that such amount is .35% for the series of Midwest
Trust) of the average daily net assets of a Fund's Class A
shares (including Retail shares of a Money Market Fund)
and not to exceed 1% of the average daily net assets of a
Fund's Class B shares and Class C shares. Under the
distribution plans, payments will be made only for
expenses incurred in providing distribution related
services. Unreimbursed distribution expenses of the
Distributor will be determined daily and the Distributor
shall not be entitled to reimbursement for any amount with
respect to any day on which there exist no unreimbursed
distribution expenses.
g. Expense accruals for both joint and class specific expenses
are reviewed each month. Based upon these reviews, adjustments
to expense accruals or expense projections are made as needed.
h. Expense ratios and yields for each class of shares will be
reviewed daily to ensure that differences in yield relate
solely to acceptable expense differentials.
i. Any change to the classification of expenses as joint or
class specific is reviewed and approved by the Board of
Trustees.
- 5 -
<PAGE>
j. MGF will perform detailed expense analyses to ensure that
expenses are properly charged to each Midwest Fund and to each
class of shares. Any expense adjustments required as a result
of this process will be made.
3. Control Objective
Dividend distributions are accurately calculated for each class of
shares.
Methodology, Procedures and Internal Accounting Controls
--------------------------------------------------------
a. The Money Market Funds and the other daily dividend Funds
declare substantially all net investment income daily.
b. The periodic dividend Funds declare substantially all net
investment income periodically.
c. Investment income, including amortization of discount and
premium, where applicable, is recorded by each Midwest Fund
and is allocated to each class of shares based upon its pro
rata percentage of the net assets of the Midwest Fund as of
the end of the prior day, adjusted for the previous day's
share activity.
d. For Money Market Funds and the other daily dividend Funds,
distributable income is calculated for each class of shares on
the pricing worksheet from which daily dividends and
distributions are calculated. The dividend rates are
calculated on a settlement date basis for class shares
outstanding.
e. Each non-daily dividend Fund will determine the amount of
accumulated income available for all classes after
deduction of allocated expenses but before consideration
of any class specific expenses. This amount will be
divided by total outstanding shares for all classes
combined to arrive at a gross dividend rate for all
shares. From this gross rate, a class specific amount per
share for each class (representing the unique and
incrementally higher, if any, expenses accrued during the
period to that class divided by the shares outstanding for
that class) is subtracted. The result is the actual per
share rate available for each class in determining amounts
to distribute.
f. Realized capital gains, if any, are allocated daily to each
class based upon its relative percentage of the total net
assets of the Midwest Fund as of the end of the prior day,
adjusted for the previous day's share activity.
g. Capital gains are distributed at least once every twelve
months with respect to each class of shares.
- 6 -
<PAGE>
h. The capital gains distribution rate will be determined on the
ex-date by dividing the total realized gains of the Midwest
Fund to be declared as a distribution by the total outstanding
shares of the Midwest Fund as of the record date.
i. Capital gains dividends per share should be identical for
each class of shares within a Midwest Fund. Differences,
if any, will be investigated and resolved.
j. Distributions are reviewed annually by MGF at fiscal year end
and as required for excise tax purposes during the fiscal year
to ensure compliance with IRS regulations and accuracy of
calculations.
There are several pervasive procedures and internal accounting controls which
impact all three of the previously mentioned objectives.
a. MGF's supervisory personnel will be involved on a daily basis
to ensure that the methodology and procedures for calculating
the net asset value and dividend distribution for each class
of shares is followed and a proper allocation of expenses
among each class of shares is performed.
b. MGF fund accountants will receive overall supervision.
Their work with regard to multiple class calculations will
be reviewed and approved by supervisors.
c. MGF's pricing worksheets will be clerically checked and
verified against corresponding computer system generated
reports.
- 7 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
1 Prior day NAV per share (unrounded)
Allocation Percentages
Complete for all Funds:
2 Shares O/S - prior day
3 Prior day shares activity
4 Adjusted shares O/S [2 + 3]
5 Adjusted net assets [4 x 1]
6 % Assets by class
For daily dividend funds complete Rows 7 - 11
For periodic (non daily) dividend funds
insert same # from Rows 2 - 6
7 Settled shares prior day
8 Prior day settled shares activity
9 Adjusted settled shares O/S [7 & 8]
10 Adjusted settled assets [9 x 1]
11 % Assets by class
Income and Expenses
12 Daily income * Expenses:
13 Management Fee*
14 12-1 Fee
15 Other Joint Expenses*
16 Direct Class Expenses
17 Daily expenses [13+14+15+16]
18 Daily Net Income [12 - 17]
19 Dividend Rate (Daily Dividend Funds Only)
[18/9]
Capital
20 Income distribution
21 Undistributed Net Income [18 - 20]
22 Capital share activity
23 Realized Gains/Losses:
24 Short-Term**
25 Long-Term**
26 Capital gain distribution
27 Unrealized appreciation/depreciation**
28 Daily net asset change
[21 + 22 + 24 + 25 + 26 + 27]
- 8 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C)
NAV Proof
29 Prior day net assets
30 Current day net assets [28 + 29]
31 NAV per share [30 / 4]
32 Sales Load as a percent of offering price
33 Offering Price [31 / (100% - 32)]
* - Allocated based on Line 11 percentages.
** - Allocated based on Line 6 percentages.
- 9 -
<PAGE>
MULTIPLE CLASS PRICING
FINANCIAL STATEMENT DISCLOSURE
Statement of Assets and Liabilities
- -----------------------------------
- Assets and liabilities will be disclosed in accordance
with standard reporting format.
- The following will be disclosed for each class:
Net Assets:
Class A Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $ --- per share based
on --- shares outstanding.
Class B Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $--- per share based
on --- shares outstanding.
Class C Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $--- per share based
on --- shares outstanding.
- 10 -
<PAGE>
Retail Shares and Institutional Shares
--------------------------------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Net Assets - equivalent to $1.00 per share based on
--- shares outstanding.
Statement of Operations
- -----------------------
- Standard reporting format, except that class specific expenses
will be disclosed for each class.
Statement of Changes in Net Assets
- -----------------------------------
- Show components by each class of shares and in total as
follows:
Current Year
- -------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional
Prior Year
- -------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional
Selected Share Data and Ratios
- Show components by each class as follows:
Current Year
- -------------------------------------------------------------------------------
Class A Class B Class C Retail Institutional
Prior Years
- -------------------------------------------------------------------------------
Class A Class B Class C Retail Institutional
Notes to Financial Statements
- Note on share transactions will include information on
each class of shares for two years
- Notes will include additional disclosure regarding
allocation of expenses between classes.
- Notes will describe the distribution arrangements,
incorporating disclosure on any classes' 12b-1 fee
arrangements.
- 11 -
<PAGE>
