<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
1933 ACT REGISTRATION NO. 2-78808
1940 ACT REGISTRATION NO. 811-3541
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 30 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 31 [X]
(Check appropriate box or boxes)
--------------
ASSET MANAGEMENT FUND, INC.
(Exact name of Registrant as specified in Charter)
230 WEST MONROE STREET, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including Area Code: 312-214-1410
<TABLE>
<S> <C>
EDWARD E. SAMMONS, JR. with a copy to:
PRESIDENT AND TREASURER CATHY G. O'KELLY, ESQ.
ASSET MANAGEMENT FUND, INC. VEDDER, PRICE, KAUFMAN & KAMMHOLZ
230 WEST MONROE STREET 222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60601
(Name and address of agent for service)
</TABLE>
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b); or
[X] on March 1, 1999 pursuant to paragraph (b); or
[ ] 60 days after filing pursuant to paragraph (a)(1); or
[ ] on (date) pursuant to paragraph (a)(1); or
[ ] 75 days after filing pursuant to paragraph (a)(2); or
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE> 2
[AMF ASSET MANAGEMENT FUND, INC.]
U.S. GOVERNMENT MORTGAGE
SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
INTERMEDIATE MORTGAGE
SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
SHORT U.S. GOVERNMENT
SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE
(ARM) PORTFOLIO
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
PROSPECTUS MARCH 1, 1999
<PAGE> 3
Providing Investment
Opportunities Covering
The Complete Maturity
Range of Fixed Income
Securities
March 1, 1999
- --------------------------------------------------------------------------------
Prospectus
- --------------------------------------------------------------------------------
AMF LOGO
- --------------------------------------------------------------------------------
Asset Management Fund, Inc.
Money Market Portfolio
Short U.S. Government Securities Portfolio
Adjustable Rate Mortgage (ARM) Portfolio
Intermediate Mortgage Securities Portfolio
U.S. Government Mortgage Securities Portfolio
These Funds:
- are not federally insured
- have no bank or government guarantees
- are not endorsed by any bank or government
agency
- may lose value
The Securities and Exchange Commission has not approved or disapproved these
securities or passed on the adequacy of this prospectus. It is a federal offense
to suggest otherwise.
There is no assurance that the Money Market Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
<PAGE> 4
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY
- -------------------------------------------
Money Market Portfolio
Short U.S. Government Securities
Portfolio 1
SUMMARY
- -------------------------------------------
Adjustable Rate Mortgage (ARM)
Portfolio
Intermediate Mortgage Securities
Portfolio
U.S. Government Mortgage Securities
Portfolio 6
INVESTMENT INFORMATION 13
- -------------------------------------------
Investment Objectives and Principal
Investment Strategies 13
Money Market Portfolio and Short
U.S. Government Securities
Portfolio 13
Adjustable Rate Mortgage (ARM)
Portfolio, Intermediate
Mortgage Securities Portfolio
and U.S. Government Mortgage
Securities Portfolio 15
Description of Securities and
Related Risks 16
Mortgage-Related Securities 16
Collateralized Mortgage
Obligations 18
When-Issued and Delayed Delivery
Securities 19
Variable and Floating Rate
Securities 20
Repurchase Agreements 20
Year 2000 20
Investment Limitations 21
FUND AND PORTFOLIO INFORMATION 22
- -------------------------------------------
Investment Adviser 22
Advisory Fee Expenses 22
Portfolio Managers 22
Distributor 23
NET ASSET VALUE 23
- -------------------------------------------
INVESTING IN THE FUND 24
- -------------------------------------------
Share Purchases 24
Minimum Investment Required 25
What Shares Cost 25
Confirmations 25
Dividends 25
Capital Gains 25
REDEEMING SHARES 26
- -------------------------------------------
Telephone Redemption 26
Written Requests 27
Signatures 27
Receiving Payment 27
EXCHANGES 27
- -------------------------------------------
STOCKHOLDER INFORMATION 28
- -------------------------------------------
Voting Rights 28
Tax Information 28
FINANCIAL HIGHLIGHTS 29
- -------------------------------------------
Money Market Portfolio 29
Short U.S. Government Securities
Portfolio 30
Adjustable Rate Mortgage (ARM)
Portfolio 31
Intermediate Mortgage Securities
Portfolio 32
U. S. Government Mortgage Securities
Portfolio 33
NEW ACCOUNT APPLICATION
- -------------------------------------------
</TABLE>
<PAGE> 5
Money Market Portfolio
Short U.S. Government Securities Portfolio SUMMARY
- --------------------------------------------------------------------------------
Investment Objective
Both Portfolios seek to achieve as high a level of current income as is
consistent with the preservation of capital, the maintenance of liquidity
and the differing average maturity of investments held by each.
In pursuing this objective, both Portfolios limit their investments to
those permissible without limitation for federal savings associations,
national banks and federal credit unions under applicable federal law.
Main Investment Strategies
The MONEY MARKET PORTFOLIO invests in high quality short-term money
market instruments (including assets subject to repurchase agreements).
The Portfolio is managed to keep its share price stable at $1.00.
The SHORT U.S. GOVERNMENT SECURITIES PORTFOLIO invests in high-quality
assets, primarily in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. To help minimize
fluctuations in principal, the Portfolio will maintain a dollar-weighted
average maturity of less than three years. The Portfolio is not a money
market fund.
Main Risks of Investing
Since the Money Market Portfolio attempts to maintain a constant $1.00
share price, the Portfolio should have little risk of principal loss.
Still, all investments carry some degree of risk and despite the
Portfolio's policies of purchasing primarily government securities and
maintaining a short average portfolio maturity, the Portfolio could
experience principal losses and may lose money in the rare event that
portfolio holdings default or interest rates rise sharply in an unusually
short period. Yields may vary with different interest rates. In addition,
neither the Federal Deposit Insurance Corporation (FDIC) nor any other
government agency insures or guarantees investments in the Portfolio.
For the Short U.S. Government Securities Portfolio, the primary risk
factor that may reduce the Portfolio's return is change in interest
rates. Prices of bonds tend to move inversely with changes in interest
rates. While a rise in rates may provide the opportunity to invest
available cash for higher yields, the most immediate effect is usually a
drop in bond prices and, therefore, the Portfolio's share price. A
security backed by the U.S. Treasury or the full faith and credit of the
United States is guaranteed only as to the timely payment of interest and
principal when held to maturity, but not the market value of such
security. Although the Portfolio should have little risk of principal
loss, it does not seek to maintain a constant share price. Your principal
value can fluctuate over time.
The information below provides an illustration of how each Portfolio's
performance has varied over time. The bar charts depict the change in
each Portfolios' performance from year-to-year during the period
indicated. The tables for each Portfolio compare that Portfolio's average
annual returns for the periods indicated to a broad-based securities
market index. A Portfolio's past performance does not necessarily
indicate how it will perform in the future.
1
<PAGE> 6
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Money Market Portfolio Graph
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------
<S> <C>
'1989' 9.42
'1990' 8.08
'1991' 5.62
'1992' 3.34
'1993' 2.78
'1994' 3.93
'1995' 5.69
'1996' 5.19
'1997' 5.32
'1998' 5.25
</TABLE>
- ---------------
* The year to date return for the three month period ended January 31, 1999 is
1.21%.
During the period shown in the bar chart, the highest return for a quarter was
2.41% (quarter ended 6/30/89) and the lowest return for a quarter was 0.68%
(quarter ended 12/31/93). The Money Market Portfolio's 7-day yield ending on
December 31, 1998 was 4.60%. To obtain the Portfolio's current 7-day yield
information, please call us toll-free at 1-800-527-3713.
Average Annual Total Returns (years ended December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Money Market Portfolio................................... 5.25% 5.07% 5.44%
</TABLE>
2
<PAGE> 7
SHORT U.S. GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Short U.S. Government Securities Portfolio Graph
<TABLE>
<CAPTION>
SHORT U.S. GOVERNMENT SECURITIES PORTFOLIO
------------------------------------------
<S> <C>
'1989' 10.72
'1990' 9.40
'1991' 11.76
'1992' 6.51
'1993' 5.78
'1994' 0.40
'1995' 11.35
'1996' 3.61
'1997' 6.25
'1998' 6.60
</TABLE>
- ---------------
* The year to date return for the three month period ended January 31, 1999 is
0.72%.
During the period shown in the bar chart, the highest return for a quarter was
5.22% (quarter ended 6/30/89) and the lowest return for a quarter was -0.42%
(quarter ended 3/31/94).
Average Annual Total Returns (years ended December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Short U.S. Government Securities Portfolio............ 6.60% 5.58% 7.18%
The Lehman Short Government 1-3 Years Index*.......... 6.97% 5.96% 7.35%
</TABLE>
- ---------------
* The Lehman Short Government 1-3 Years Index is an unmanaged index comprised of
the full range of 1-3 year U.S. Government and agency securities.
3
<PAGE> 8
FEES AND EXPENSES:
Shareholder fees. Neither of the Portfolios impose shareholder fees. These are
the fees charged directly to an investor's account. Examples of shareholder fees
include sales loads, redemption fees or exchange fees.
Annual Portfolio operating expenses are paid out of a Portfolio's assets and
include fees for portfolio management, maintenance of shareholder accounts,
shareholder servicing, accounting and other services. You do not pay these fees
directly but, as the example shows, these costs are borne indirectly by
shareholders.
FEES AND EXPENSES OF THE PORTFOLIOS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
<TABLE>
<CAPTION>
Money Market Short U.S. Government
Portfolio Securities Portfolio
------------ ---------------------
<S> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge Imposed on Purchases... None None
Maximum Sales Charge Imposed on Reinvested
Dividends................................. None None
Redemption Fees............................. None None
Exchange Fees............................... None None
Maximum Account Fee......................... None None
</TABLE>
<TABLE>
<CAPTION>
Money Market Short U.S. Government
Portfolio Portfolio
------------ ---------------------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee................................ 0.15%* 0.25%
12b-1 Fees.................................. 0.15% 0.15%
Other Expenses.............................. 0.10% 0.10%
----- -----
Total Fund Operating Expenses............... 0.40% 0.50%
===== =====
</TABLE>
- ---------------
* This table and the example on page 5 have been prepared to illustrate annual
Fund Operating Expenses assuming no fee waivers. The Adviser voluntarily
waived all of its advisory fees during the 1998 fiscal year. Therefore,
"Advisory Fee" and "Total Fund Operating Expenses" for the Money Market
Portfolio were 0% and 0.25%, respectively, for 1998.
4
<PAGE> 9
EXAMPLE
This example is intended to help you compare the cost of investing in a
Portfolio with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in either Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that a Portfolio's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio......................... $41 $128 $224 $505
Short U.S. Government Securities Portfolio..... $51 $160 $280 $628
</TABLE>
5
<PAGE> 10
Adjustable Rate Mortgage (ARM) Portfolio
Intermediate Mortgage Securities Portfolio
U.S. Government Mortgage Securities Portfolio SUMMARY
- --------------------------------------------------------------------------------
Investment Objective
The Portfolios seek to achieve as high a level of current income as is
consistent with the preservation of capital, the maintenance of liquidity
and the differing average maturity of investments held by each.
Main Investment Strategies
The ADJUSTABLE RATE MORTGAGE (ARM) PORTFOLIO seeks lower volatility of
principal than would be provided by fixed rate securities by investing
primarily in high quality adjustable rate mortgage securities. The
Adviser expects that a portfolio of these types of securities will
generally provide higher current yields than money market securities or
alternative investments of comparable quality and market rate volatility.
The INTERMEDIATE MORTGAGE SECURITIES PORTFOLIO invests primarily in
intermediate-term mortgage-related securities guaranteed directly by the
United States or issued or guaranteed by U.S. Government agencies or
instrumentalities. The Portfolio seeks to invest in mortgage-related
securities that will produce less price volatility than would normally be
associated with the ownership of 30-year, fixed-rate mortgage-backed
securities and intends to maintain a dollar-weighted expected average
life of between 2 to 7 years.
The U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO invests primarily in
mortgage-related securities guaranteed directly by the United States or
issued or guaranteed by U.S. Government agencies or instrumentalities.
The Portfolio intends to maintain a dollar-weighted expected average life
of between 4 to 12 years.
Main Risks of Investing
Normally, the values of mortgage-related securities (and in particular,
fixed-rate ones) vary inversely with changes in prevailing interest
rates. However, the potential for appreciation in fixed-rate
mortgage-related securities in the event of a decline in interest rates
could be lessened by increased principal prepayments on those securities
(prepayment risk). Conversely, during periods of rising interest rates,
property owners may prepay their mortgages more slowly than expected,
resulting in slower prepayments of mortgage-backed securities (extension
risk) which reduces the value of the security and increases its duration.
In addition, investments in private issue mortgage-related securities may
expose a Portfolio to
6
<PAGE> 11
the risk that the credit rating of the securities will be downgraded or
the issuers default.
For fixed rate mortgage-related securities, the potential for volatility
in price increases as the duration of the security increases. A security
backed by the U.S. Treasury or the full faith and credit of the United
States is guaranteed only as to the timely payment of interest and
principal when held to maturity and not as to market value.
While the Adjustable Rate Mortgage (ARM) Portfolio seeks to maintain a
stable net asset value, its net asset value may be more volatile than a
money market fund and it might not be able to maintain a stable value. In
addition, interest rates payable under adjustable rate mortgage
securities are typically locked in only for short specified periods of
time. Consequently, an increase in interest rates may cause a decline in
the price of a security until such time as the security's interest rate
is adjusted upward and a decline in prevailing interest rates may cause a
decline in the yield on investments in such securities at the next reset.
The Portfolios are designed for long-term investors. The Portfolios'
returns will vary. There is no assurance that any Portfolio will achieve
its investment objective. Your principal value can fluctuate over time.
The information below provides an illustration of how each Portfolio's
performance has varied over time. The bar charts depict the change in
each Portfolios' performance from year-to-year during the period
indicated. The table for each Portfolio compares that Portfolio's average
annual returns for the periods indicated to a broad-based securities
market index. A Portfolio's past performance does not necessarily
indicate how it will perform in the future.
7
<PAGE> 12
ADJUSTABLE RATE MORTGAGE (ARM) PORTFOLIO
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Adjustable Rate Mortgage Bar Chart
<TABLE>
<CAPTION>
ADJUSTABLE RATE MORTGAGE (ARM)
PORTFOLIO
------------------------------
<S> <C>
1991** 1.95
'1992' 4.42
'1993' 4.70
'1994' 1.97
'1995' 9.13
'1996' 5.92
'1997' 6.51
'1998' 5.14
</TABLE>
- ---------------
* The year to date return for the three month period ended January 31, 1999 is
1.48%.
** From inception September 18, 1991.
During the period shown in the bar chart, the highest return for a quarter was
2.95% (quarter ended 3/31/95) and the lowest return for a quarter was 0.07%
(quarter ended 6/30/94).
Average Annual Total Returns (years ended December 31, 1998)
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Years (9/18/91)
------ ------- ---------
<S> <C> <C> <C>
Adjustable Rate Mortgage (ARM) Portfolio............. 5.14% 5.71% 5.44%
The Lehman Adjustable Rate Mortgage Index*........... 5.27% 6.11% 6.03%
</TABLE>
- ---------------
* The Lehman Adjustable Rate Mortgage Index is an unmanaged index of adjustable
rate mortgage-related securities. Comparative returns from 9/18/91 through
12/31/92 are from the Lehman Short 1-2 Year Index. The Lehman Adjustable Rate
Mortgage Index, which is a more relevant index, did not exist during this
period.
8
<PAGE> 13
INTERMEDIATE MORTGAGE SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Intermediate Mortgage Securities Portfolio Bar Chart
<TABLE>
<CAPTION>
INTERMEDIATE MORTGAGE SECURITIES
PORTFOLIO
--------------------------------
<S> <C>
'1989' 12.64
'1990' 6.16
'1991' 16.18
'1992' 7.87
'1993' 6.86
'1994' 1.60
'1995' 13.90
'1996' 2.85
'1997' 8.37
'1998' 6.90
</TABLE>
- ---------------
* The year to date return for the three month period ended January 31, 1999 is
1.46%.
During the period shown in the bar chart, the highest return for a quarter was
8.57% (quarter ended 6/30/89) and the lowest return for a quarter was -1.63%
(quarter ended 3/31/94).
Average Annual Total Returns (years ended December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Intermediate Mortgage Securities Portfolio............ 6.90% 5.96% 7.90%
The Lehman U.S. Mortgage Index*....................... 6.96% 7.23% 9.13%
</TABLE>
- ---------------
* The Lehman U.S. Mortgage Index is an unmanaged index of agency mortgage-backed
securities.
9
<PAGE> 14
U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Mortgage Securities Bar Chart
<TABLE>
<CAPTION>
U.S. GOVERNMENT MORTGAGE SECURITIES
PORTFOLIO
-----------------------------------
<S> <C>
'1989' 14.34
'1990' 10.05
'1991' 14.77
'1992' 6.44
'1993' 6.82
'1994' -2.33
'1995' 16.15
'1996' 2.82
'1997' 9.67
'1998' 7.05
</TABLE>
* The year to date return for the three month period ended January 31, 1999 is
1.34%.
During the period shown in the bar chart, the highest return for a quarter was
7.99% (quarter ended 6/30/89) and the lowest return for a quarter was -2.37%
(quarter ended 3/31/94).
Average Annual Total Returns (years ended December 31, 1998)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
U.S. Government Mortgage Securities Portfolio......... 7.05% 6.47% 8.44%
The Lehman U.S. Mortgage Index*....................... 6.96% 7.23% 9.13%
</TABLE>
- ---------------
* The Lehman U.S. Mortgage Index is an unmanaged index of agency mortgage-backed
securities.
10
<PAGE> 15
FEES AND EXPENSES:
Shareholder fees. None of the Portfolios impose shareholder fees. These are the
fees charged directly to an investor's account. Examples of shareholder fees
include sales loads, redemption fees or exchange fees.
Annual Portfolio operating expenses are paid out of a Portfolio's assets and
include fees for portfolio management, maintenance of shareholder accounts,
shareholder servicing, accounting and other services. You do not pay these fees
directly but, as the example shows, these costs are borne indirectly by
shareholders.
FEES AND EXPENSES OF THE PORTFOLIOS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
<TABLE>
<CAPTION>
Adjustable Rate Intermediate U.S. Government
Mortgage (ARM) Mortgage Mortgage
Portfolio Securities Portfolio Securities Portfolio
--------------- -------------------- --------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge Imposed on
Purchases........................ None None None
Maximum Sales Charge Imposed on
Reinvested Dividends............. None None None
Redemption Fees.................... None None None
Exchange Fees...................... None None None
Maximum Account Fee................ None None None
</TABLE>
<TABLE>
<CAPTION>
Adjustable Rate Intermediate U.S. Government
Mortgage (ARM) Mortgage Mortgage
Portfolio Securities Portfolio Securities Portfolio
--------------- -------------------- --------------------
<S> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Advisory Fee....................... 0.45%(1) 0.35%(2) 0.25%
12b-1 Fees......................... 0.25%(1) 0.15% 0.15%
Other Expenses..................... 0.09% 0.09% 0.13%
----- ----- -----
Total Fund Operating Expenses...... 0.79% 0.59% 0.53%
===== ===== =====
</TABLE>
- ---------------
(1) The fee table and the example on page 12 have been prepared to illustrate
annual Fund Operating Expenses assuming no fee waivers. The Adviser and the
Distributor voluntarily waived a portion of the their fees during the 1998
fiscal year and intend to do the same for 1999. Therefore, "Advisory Fee,"
"12b-1 Fees" and "Total Fund Operating Expenses" for the Adjustable Rate
Mortgage (ARM) Portfolio were 0.25%, 0.15% and 0.49%, respectively, for
1998.
(2) The fee table and the example on page 12 have been prepared to illustrate
annual Fund Operating Expenses assuming no fee waivers. The Adviser
voluntarily waived a portion of its advisory fee during the 1998 fiscal
year. Therefore, "Advisory Fee" and "Total Fund Operating Expenses" for the
Intermediate Mortgage Securities Portfolio were 0.25% and 0.49%,
respectively, for 1998.
11
<PAGE> 16
EXAMPLE
This example is intended to help you compare the cost of investing in the
Adjustable Rate Mortgage (ARM) Portfolio, Intermediate Mortgage Securities
Portfolio or U.S. Government Mortgage Securities Portfolio with the cost of
investing in other mutual funds. The example assumes that you invest $10,000 in
a Portfolio for the time periods indicated and then redeem all of your shares at
the end of those periods. The example also assumes that your investment has a 5%
return each year and that a Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Mortgage (ARM) Portfolio........... $81 $252 $439 $978
Intermediate Mortgage Securities Portfolio......... $60 $189 $329 $738
U.S. Government Mortgage Securities Portfolio...... $54 $170 $296 $665
</TABLE>
12
<PAGE> 17
INVESTMENT INFORMATION
Investment Objectives and Principal Investment Strategies
- --------------------------------------------------------------------------------
The investment objective of the Fund is to achieve as high a level of
current income as is consistent with the preservation of capital, the
maintenance of liquidity and the differing average maturity of
investments held by each of the Fund's Portfolios. Each Portfolio pursues
this investment objective by investing in the securities described below.
While there is no assurance that a Portfolio will achieve its investment
objective, each endeavors to do so by following the investment policies
and limitations described below. The Fund's investment objective and
these policies and limitations cannot be changed as to a Portfolio
without approval of that Portfolio's stockholders.
Money Market Portfolio and
Short U.S. Government Securities Portfolio
The Money Market Portfolio invests only in high quality assets (including
assets subject to repurchase agreements) that qualify as "liquid assets"
for savings associations under the regulations of the Office of Thrift
Supervision of the Department of the Treasury ("OTS Regulations") and
that, if included in the Portfolio, will qualify its shares as "liquid
assets." As a result, the Fund believes Portfolio shares qualify as
"liquid assets" under the OTS Regulations. The Portfolio invests in high
quality short-term money market instruments that are determined to
present minimal credit risks and that meet the quality and
diversification requirements of Rule 2a-7 under the Investment Company
Act of 1940. Securities must be rated in the top two rating categories by
the required number of nationally recognized statistical rating
organizations (at least two or, if only one such organization has rated
the security, that one organization) or, if unrated, must be deemed by
the Adviser to be comparable in quality. The diversification requirements
provide generally that the Portfolio may not at the time of acquisition
invest more than 5% of its assets in securities of any one issuer or
invest more than 5% of its assets in securities that have not been rated
in the highest category by the required number of rating organizations
or, if unrated, have not been deemed comparable, except U.S. Government
securities and repurchase agreements collateralized by such securities.
The Portfolio will maintain a dollar-weighted average maturity of 90 days
or less. It is the policy of the Portfolio that it generally holds its
investments to maturity.
The Short U.S. Government Securities Portfolio invests only in high
quality assets (including assets subject to repurchase agreements) that
qualify as "liquid assets" for savings associations under the current OTS
Regulations and that, if included in the Portfolio, will qualify its
shares as "liquid assets." As a result, the Fund believes Portfolio
shares qualify as "liquid assets" under the OTS Regulations. As a
fundamental investment policy, the Portfolio invests, under normal market
conditions, at least 65% of its total assets in U.S. Government
obligations, which consist of obligations issued directly by the United
States and obligations issued by or fully guaranteed by
13
<PAGE> 18
U.S. Government agencies or instrumentalities. In addition, under normal
market conditions, the Portfolio will maintain a dollar-weighted average
maturity of less than three years as a non-fundamental investment policy.
Permissible investments for the Money Market Portfolio and the Short U.S.
Government Securities Portfolio include:
- Obligations issued directly by the U.S. Government or issued by an
agency or instrumentality of the U.S. Government and fully guaranteed
as to principal and interest by the U.S. Government, although not as to
market value. These obligations include U.S. Treasury bonds, notes and
bills and obligations issued by the Federal Financing Bank and the
Government National Mortgage Association. These obligations may also
include variable and floating rate securities.
- Obligations issued by or fully guaranteed as to principal and interest
by the following U.S. Government agencies or instrumentalities: the
Federal Home Loan Banks, Freddie Mac, Fannie Mae, the Federal Farm
Credit Banks and the Student Loan Marketing Association. Since the
obligations issued or guaranteed by these U.S. Government agencies or
instrumentalities are not backed by the full faith and credit of the
U.S. Government, the Portfolio must look principally to the agencies or
instrumentalities for ultimate repayment, and may not be able to assert
claims against the U.S. Government itself if those agencies or
instrumentalities do not meet their commitments.
- Certificates of deposit and other time deposits and savings accounts in
a commercial or savings bank or savings association whose accounts are
insured by the Federal Deposit Insurance Corporation ("FDIC Insured
Institution"), including certificates of deposit issued by and other
time deposits in foreign branches of FDIC insured banks, if they have
remaining maturities of 397 days or less (if negotiable) or 90 days or
less (if non-negotiable). Investments in certificates of deposit issued
by and other time deposits in foreign branches of FDIC insured banks
involve somewhat different investment risks from those affecting
deposits in United States branches of such banks, including the risk of
future political or economic developments, or government action, that
would adversely affect payments on deposits.
- Bankers' acceptances of an FDIC Insured Institution if such acceptances
have remaining maturities of 6 months or less and the Portfolio's total
investment in such acceptances of the same institution does not exceed
0.25% of such institution's total deposits.
Each Portfolio's investments in repurchase agreements and certificates of
deposit and other time deposits of or in FDIC Insured Institutions will
generally not be insured by any government agency. The Board of Directors
has adopted operating policies to further restrict certain investments
(see Statement of Additional Information for these two Portfolios).
14
<PAGE> 19
Adjustable Rate Mortgage (ARM) Portfolio,
Intermediate Mortgage Securities Portfolio and
U.S. Government Mortgage Securities Portfolio
The Adjustable Rate Mortgage (ARM) Portfolio, the Intermediate Mortgage
Securities Portfolio, and the U.S. Government Mortgage Securities
Portfolio (collectively referred to as the "Mortgage Securities
Portfolios") invest primarily in "securities backed by or representing an
interest in mortgages on domestic residential housing or manufactured
housing" meeting the definition of such assets for purposes of the
qualified thrift lender ("QTL") test under the current Office of Thrift
Supervision ("OTS") Regulations. Pending any revisions of the current OTS
Regulations, each Mortgage Securities Portfolio expects that, absent
extraordinary market developments, at least 65% of its assets will
qualify for QTL purposes for savings associations, although actual
percentages may be higher. In addition, each Mortgage Securities
Portfolio will not purchase any investments having a risk-based weighting
in excess of 20% under the current risk-based capital regulations
established by the OTS. Also, each Mortgage Securities Portfolio will not
purchase any investments having a risk-based weighting for banks in
excess of 50% under current federal regulations of the appropriate
regulatory agencies. Furthermore, each Mortgage Securities Portfolio will
not invest in "high risk" securities that do not meet the tests contained
in the "Supervisory Policy Statement on Securities Activities" adopted by
the Federal Deposit Insurance Corporation, the Office of the Comptroller
of the Currency, the OTS and the National Credit Union Administration,
respectively, and each Mortgage Securities Portfolio limits its
investments to those permissible without limitation for federal savings
associations, national banks and federal credit unions under current
applicable regulations.
The Adjustable Rate Mortgage (ARM) Portfolio will invest at least 65% of
its assets in adjustable rate mortgage securities, except when the
Portfolio assumes a temporary defensive position. This investment policy
is deemed fundamental and may not be changed without stockholder
approval. Because of the characteristics of adjustable rate mortgage
securities, the Adviser expects that a portfolio of these types of
securities will generally provide higher current yields than money market
securities or alternative investments of comparable quality and market
value volatility. While the Portfolio's net asset value will be more
volatile than prices of money market securities, it will be less volatile
than prices of fixed-rate securities of similar quality.
The Intermediate Mortgage Securities Portfolio will invest at least 65%
of its assets in mortgage-related securities paying fixed or adjustable
rates of interest, except when the Portfolio assumes a temporary
defensive position. This investment policy is deemed fundamental and may
not be changed without stockholder approval. Generally, the Portfolio
will seek to acquire mortgage-related securities having an expected
average life of 2 to 7 years at the time of purchase and will also seek
to maintain a dollar-weighted expected average life of between 2 to 7
years with respect to such securities held by the Portfolio at any one
time. These goals might be difficult to meet in certain environments when
mortgage prepayments are very
15
<PAGE> 20
high or very low, but in no case would the Portfolio invest in a
mortgage-related security that had an expected average life of greater
than 10 years at the time of purchase.
The U.S. Government Mortgage Securities Portfolio will invest at least
65% of its assets in mortgage-related securities guaranteed directly by
the United States or issued or guaranteed by U.S. Government agencies or
instrumentalities ("Government Mortgage-Related Securities"), except when
the Portfolio assumes a temporary defensive position. This investment
policy is deemed fundamental and may not be changed without stockholder
approval.
In addition to mortgage-related securities, the Mortgage Securities
Portfolios may invest in: (1) certain U.S. Government or agency
securities, certain of which are not backed by the full faith and credit
of the U.S. Government (see the Statement of Additional Information for
the Mortgage Securities Portfolios), (2) investments in certificates of
deposit or other time deposits or accounts of an FDIC Insured
Institution, including foreign branches of FDIC insured banks, (3)
repurchase agreements collateralized by securities in which the
Portfolios may invest, or (4) bankers' acceptances of an FDIC insured
bank if such acceptances have remaining maturities of six months or less
and the Portfolio's total investments in such acceptances of the same
bank do not exceed 0.25% of such bank's total deposits.
The risk-based capital information and QTL qualifying percentages for
each Mortgage Securities Portfolio will be communicated quarterly to the
stockholders. The Board of Directors has adopted operating policies to
further restrict certain investments (see the Statement of Additional
Information for the Mortgage Securities Portfolios). When business or
financial conditions warrant, the Portfolios may take a temporary
defensive position and invest without limit in the foregoing investments.
Description of Securities and Related Risks
- --------------------------------------------------------------------------------
Mortgage-Related Securities
"Mortgage-Related Securities" are high quality securities that directly
or indirectly provide funds principally for residential mortgage loans
made to home buyers in the United States and that represent interests in,
or are collateralized by, pools of mortgage loans originated by private
lenders that have been grouped by various governmental,
government-related and private organizations. Most Mortgage-Related
Securities are pass-through securities, which means that they provide
investors with payments consisting of both principal and interest as
mortgages in the underlying mortgage pool are paid off by the borrowers.
The average maturity of pass-through Mortgage-Related Securities varies
with the maturities of the underlying mortgage instruments and with the
occurrence of unscheduled prepayments of those mortgage instruments. The
text that follows is applicable to the Mortgage Securities Portfolios.
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<PAGE> 21
Mortgage-Related Securities may be classified into the following
principal categories, according to the issuer or guarantor:
- Government Mortgage-Related Securities consist of both governmental and
government-related securities. Governmental securities are backed by
the full faith and credit of the U.S. Government. The Government
National Mortgage Association ("GNMA"), the principal U.S. Government
guarantor of such securities, is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the
U.S. Government, the timely payment of principal and interest, but not
of market value, on securities issued by approved institutions and
backed by pools of FHA-insured or VA-guaranteed mortgages. Government-
related securities are issued by U.S. Government-sponsored corporations
and are not backed by the full faith and credit of the U.S. Government.
Issuers include Fannie Mae ("FNMA"), and Freddie Mac ("FHLMC"). FNMA is
a U.S. Government-sponsored corporation owned entirely by private
stockholders. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA. FHLMC issues
Mortgage-Related Securities representing interests in mortgage loans
pooled by it. FHLMC is a U.S. Government-sponsored corporation that
guarantees the timely payment of interest and ultimate collection of
principal, and its stock is publicly traded.
- Private Mortgage-Related Securities represent interests in, or are
collateralized by, pools consisting principally of residential mortgage
loans created by non-governmental issuers. These securities generally
offer a higher rate of interest than governmental and
government-related Mortgage-Related Securities because there are no
direct or indirect government guarantees of payment as in the former
securities, although certain credit enhancements may exist. Securities
issued by private organizations may not have the same degree of
liquidity as those with direct or indirect government guarantees.
Private Mortgage-Related Securities purchased by the Mortgage
Securities Portfolios must be rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization.
Mortgage-Related Securities include both fixed-rate and adjustable rate
mortgage securities ("ARMS"). Unlike fixed-rate mortgage securities, ARMS
have periodic adjustments in the coupons on the underlying mortgages. The
adjustable rate feature of the mortgages underlying the ARMS in which the
Mortgage Securities Portfolios invest generally will help to reduce sharp
changes in each Portfolio's net asset value in response to normal
interest rate fluctuations to the extent that each Portfolio is invested
in ARMS. As the interest rates on the mortgages underlying a Portfolio's
investments in ARMS are reset periodically (generally one to twelve
months but as long as five years), the yields of such portfolio
securities will gradually align themselves to reflect changes in market
rates so that the market value of such securities will remain relatively
constant as compared to fixed-rate instruments. This in turn should cause
the net asset value of the Portfolio to fluctuate less than it would if
the Portfolio invested entirely in more traditional longer-term, fixed-
rate debt securities.
17
<PAGE> 22
In contrast to fixed-rate mortgages, which generally decline in value
during periods of rising interest rates, ARMS permit a Portfolio to
participate in increases in interest rates through periodic adjustments
in the coupons of the underlying mortgages. This should produce both
higher current yields and lower price fluctuations during such periods to
the extent the Portfolio has invested in ARMS. Furthermore, if
prepayments of principal are made on the underlying mortgages during
periods of rising interest rates, the Portfolios generally will be able
to reinvest such amounts in securities with a higher yield. For certain
types of ARMS, the rate of amortization of principal, as well as interest
payments, can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of
interest due to an ARMS holder is calculated by adding a specified
additional amount, the "margin," to the index, subject to limitations or
"caps" on the maximum or minimum interest that is charged to the
mortgagor during the life of the mortgage or to maximum and minimum
changes in the interest rate during a given period. As a result, the
Mortgage Securities Portfolios will not benefit from increases in
interest rates to the extent that interest rates rise to the point where
they cause the current coupon of adjustable rate mortgages held as
investments to exceed the maximum allowable annual (usually 100 to 200
basis points) or lifetime reset limits (or "cap rates") for a particular
mortgage. Fluctuations in interest rates above these levels could cause
such mortgage securities to behave more like long-term, fixed-rate debt
securities. Moreover, a Portfolio's net asset value could vary to the
extent that current yields on mortgage-backed securities are different
than market yields during interim periods between coupon reset dates.
Thus, investors could suffer some principal loss if they sold their
shares of the Portfolio before the interest rates on the underlying
mortgages were adjusted to reflect current market rates.
All mortgage-backed securities carry the risk that interest rate declines
may result in accelerated prepayment of mortgages and the proceeds from
such prepayment of mortgages may be reinvested at lower prevailing
interest rates. During periods of declining interest rates, the coupon
rates for ARMS may readjust downward, resulting in lower yields to the
Mortgage Securities Portfolios. Further, because of this feature, ARMS
may have less potential for capital appreciation than fixed-rate
instruments of comparable maturities during periods of declining interest
rates. Therefore, ARMS may be less effective than fixed-rate securities
as a means of "locking in" long-term interest rates.
If mortgage securities are purchased at a premium, mortgage foreclosures
and unscheduled principal prepayments may result in some loss of the
holders' principal investment to the extent of the premium paid. On the
other hand, if mortgage securities are purchased at a discount, both a
scheduled payment of principal and an unscheduled repayment of principal
will increase current and total returns.
Collateralized Mortgage Obligations
Mortgage-Related Securities also include debt obligations collateralized
by the cash flows from mortgage loans, pools of mortgage loans or
mortgage pass-through securities (often referred to as collateralized
mortgage obligations or
18
<PAGE> 23
"CMOs"). CMOs may be issued or guaranteed by GNMA, FNMA or FHLMC, or they
may be issued by private entities such as financial institutions,
investment bankers, mortgage bankers and single-purpose stand-alone
finance subsidiaries or trusts of such institutions. The CMOs and a form
of them known as a real estate mortgage investment conduit ("REMIC")
typically have a multi-class structure ("Multi-Class Mortgage-Related
Securities"). Multi-Class Mortgage-Related Securities issued by private
issuers may be collateralized by pass-through securities guaranteed by
GNMA or issued by FNMA or FHLMC, or they may be collateralized by whole
loans or pass-through mortgage-related securities of private issuers.
Each class has a specified maturity or final distribution date. In one
structure, payments of principal, including any principal prepayments, on
the collateral are applied to the classes in the order of their
respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class until all classes having
an earlier stated maturity or final distribution date have been paid in
full. In other structures, certain classes may pay concurrently, or one
or more classes may have a priority with respect to payments on the
underlying collateral up to a specified amount. The Mortgage Securities
Portfolios will not invest in any class with residual characteristics. In
addition, each Portfolio limits its purchase of CMOs and REMICs issued by
private entities to those that are rated in one of the two highest rating
categories by at least one nationally recognized statistical ratings
organization, and all CMOs and REMICs must pass the "high risk" tests
applicable to the investments of federal savings associations, national
banks and federal credit unions.
When-Issued and Delayed Delivery Securities
The Mortgage Securities Portfolios may purchase securities on a
when-issued or delayed delivery basis, i.e., for delivery and payment at
a future date. The purchase price and the interest rate payable on the
securities are fixed on the transaction date. At the time of its
delivery, a when-issued or delayed delivery security may be valued at
less than the purchase price. Each Portfolio will make commitments for
such transactions only when it has the intention of actually acquiring
the securities. If a Portfolio chooses to dispose of the right to acquire
a when-issued or delayed delivery security prior to its acquisition, it
could, as with the disposition of any other portfolio investment, incur a
gain or loss due to market fluctuation. When securities are purchased on
a when-issued or delayed delivery basis, the Portfolio must set aside
funds in a segregated account to pay for the purchase, and until
acquisition, the Portfolio will not earn any interest on the security.
Each Portfolio may not enter into when-issued commitments exceeding in
the aggregate 15% of the value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued
commitments.
19
<PAGE> 24
Variable and Floating Rate Securities
The Portfolios may purchase U.S. Government securities that have variable
or floating rates of interest ("Variable Rate Securities"). These
securities pay interest at rates that are adjusted periodically according
to a specified formula, usually with reference to some interest rate
index or market interest rate. The interest paid on Variable Rate
Securities is a function primarily of the index or market rate upon which
the interest rate adjustments are based. Similar to fixed rate debt
instruments, variable and floating rate instruments are subject to
changes in value based on changes in market interest rates, but because
of the interest reset provision, the potential for capital appreciation
or depreciation is generally less than for fixed rate obligations. Each
Portfolio determines the maturity of Variable Rate Securities in
accordance with Securities and Exchange Commission rules which allow the
Portfolio to consider certain of such instruments as having maturities
shorter than the maturity date on the face of the instrument.
Repurchase Agreements
The Portfolios may enter into repurchase agreements under which each may
acquire securities in which the particular Portfolio may invest for a
relatively short period (usually not more than 30 days) subject to an
obligation of the seller to repurchase and the Portfolio to resell the
instrument at a fixed price and time, thereby determining the yield
during the Portfolio's holding period. If the seller defaults in its
obligation to repurchase from the Portfolio the underlying collateral,
the Portfolio may incur a loss. Each Portfolio will make payment for such
instruments only upon their physical delivery to or evidence of their
book entry transfer to the account of the Portfolio's custodian. No
Portfolio will enter into any repurchase agreements maturing in more than
60 days.
Year 2000
Like other mutual funds and business organizations worldwide, the Fund's
service providers (among them, the Adviser, Distributor, administrator,
custodian and transfer agent) must ensure that their computer systems are
adjusted to properly process and calculate date-related information from
and after January 1, 2000. Many software programs and, to a lesser
extent, the computer hardware in use today cannot distinguish the year
2000 from the year 1900. Such a design flaw could have a negative impact
in the handling of securities trades, pricing and accounting services.
The Fund and its service providers are actively working on necessary
changes to computer systems to deal with the year 2000 issue and believe
that their systems will be year 2000 compliant when required, but there
can be no assurance that they will be successful. In addition there can
be no assurance that the year 2000 issue will not have an adverse effect
on the issuers whose securities are held by a Portfolio or on markets or
on the economy in general.
20
<PAGE> 25
Investment Limitations
- --------------------------------------------------------------------------------
Each Portfolio may not borrow except that it may borrow from banks for
temporary or emergency purposes in an aggregate amount not exceeding 10%
of the value of its net assets and may pledge up to 20% of its net assets
to secure such borrowings. All borrowings of the Intermediate Mortgage
Securities Portfolio may not exceed in the aggregate one-third of the
value of that Portfolio's total assets, less liabilities other than such
borrowings. To the extent that borrowings exceed 5% of a Portfolio's net
assets, such borrowings will be repaid before any investments are made.
The Money Market Portfolio and the Short U.S. Government Securities
Portfolio will not purchase any securities maturing in more than seven
days for which market quotations are not readily available and will not
enter into any repurchase agreements maturing in more than seven days if,
as a result, more than 10% of the market value of their respective total
assets would be invested in such illiquid securities together with such
repurchase agreements maturing in more than seven days.
The Money Market Portfolio and the Short U.S. Government Securities
Portfolio will not invest more than 25% of their respective total assets
in the securities of issuers in any single industry, provided that there
shall be no such limitation on the purchase of obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
or time deposits (including certificates of deposit), savings deposits
and bankers' acceptances of United States branches of United States
banks.
The Adjustable Rate Mortgage (ARM) Portfolio will not purchase any
securities maturing in more than seven days for which market quotations
are not readily available, or purchase interest rate caps and floors, or
enter into any repurchase agreements maturing in more than seven days if,
as a result, more than 10% of the market value of its total assets would
be invested in such illiquid securities.
The Intermediate Mortgage Securities Portfolio will not purchase any
securities maturing in more than seven days for which market quotations
are not readily available and will not enter into any repurchase
agreements maturing in more than seven days if, as a result, more than
15% of the market value of its total assets would be invested in such
illiquid securities together with repurchase agreements maturing in more
than seven days. To the extent Rule 144A securities are deemed by the
Adviser, subject to the supervision of the Board of Directors, to be
illiquid, they will be subject to the foregoing 15% limitation on
illiquid securities.
The U.S. Government Mortgage Securities Portfolio will not purchase any
Mortgage-Related Securities or other securities maturing in more than
seven days for which market quotations are not readily available and will
not enter into any repurchase agreements maturing in more than seven days
if, as a result, more than 10% of the market value of its total assets
would be invested in such illiquid securities together with such
repurchase agreements maturing in more than seven days.
21
<PAGE> 26
The Mortgage Securities Portfolios will not invest more than 25% of their
respective total assets in the securities of issuers in any single
industry, provided that there shall be no limitation on investments in
the mortgage and mortgage finance industry (in which more than 25% of the
value of each Portfolio's total assets will, except for temporary
defensive purposes, be invested) or on obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
FUND AND PORTFOLIO INFORMATION
Investment Adviser
- --------------------------------------------------------------------------------
Investment decisions for the Portfolios are made by Shay Assets
Management, Inc. ("Adviser"), a company controlled by Rodger D. Shay. The
Adviser, which is located at 230 West Monroe Street, Chicago, Illinois
60606, is registered under the Investment Advisers Act of 1940 and
manages approximately $1.5 billion in assets. Prior to December 8, 1997,
Shay Assets Management Co. ("SAMC"), a company half of which was
controlled by Rodger D. Shay and half owned by an indirect wholly owned
subsidiary of America's Community Bankers, served as the Fund's
investment adviser. The Adviser is responsible for placing purchase and
sale orders for portfolio instruments.
Advisory Fee Expenses
The Portfolios pay an annual advisory fee based upon a percentage of
average daily net assets. During the period from November 1, 1997 through
December 7, 1997, the advisory fee was paid to SAMC and from December 8,
1997 through October 31, 1998, the advisory fee was paid to the Adviser
as follows:
<TABLE>
<S> <C>
Money Market Portfolios............................. 0.00%*
Short U.S. Government Securities Portfolio.......... 0.25%
Adjustable Rate Mortgage (ARM) Portfolios........... 0.25%*
Intermediate Mortgage Securities Portfolio.......... 0.25%*
U.S. Government Mortgage Securities Portfolio....... 0.25%
</TABLE>
- ---------------
* The investment advisers voluntarily waived all advisory fees with respect to
the Money Market Portfolio. Without such waivers, the fee would have been
0.15%. The investment advisers voluntarily waived a portion of the advisory
fees with respect to the Adjustable Rate Mortgage (ARM) Portfolio and the
Intermediate Mortgage Securities Portfolio. Without such waivers, the fees
would have been 0.45% and 0.35%, respectively.
Each voluntary waiver may be terminated at any time by the Adviser.
Portfolio Managers
The Portfolio Managers of the Adviser manage the Fund's investments as a
team under the day-to-day direction of Edward E. Sammons, Jr., President
of the Adviser. Mr. Sammons has served as President of the Fund since
1998 and was Vice President of the Fund from 1985 through 1997. Mr.
Sammons assumed primary responsibility for the Fund's investments in
1985.
22
<PAGE> 27
Distributor
- --------------------------------------------------------------------------------
Effective December 8, 1997, the Distributor, Shay Financial Services,
Inc., succeeded to the broker-dealer business of Shay Financial Services
Co. ("SFSC"). Pursuant to the Distribution Agreement, the Distributor, as
the principal distributor of the Fund's shares, directly and through
other firms advertises and promotes the Fund. For its distribution
services, the Distributor receives an annual fee from the Fund in
accordance with the distribution plan adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "12b-1 Plan").
Because these fees are paid out of a Portfolio's assets on an on-going
basis over time, these fees will increase the cost of your investment.
This charge theoretically could cost you more over time than you would
pay through some other types of sales charges; however, the Fund's Rule
12b-1 fees are so low that the Fund is classified as a "no-load" fund.
NET ASSET VALUE
For all Portfolios other than the Money Market Portfolio, the net asset
value per share fluctuates daily. It is determined by dividing the value
of all securities and all other assets, less liabilities, by the number
of shares outstanding. Portfolio assets are valued at market value using
market quotations or prices obtained from an independent pricing service
based upon prices provided by market makers or estimates of market values
obtained from yield data relating to instruments or securities with
similar characteristics. For certain mortgage related securities the
Board of Directors has approved the use of a matrix developed by the
Adviser which the Board believes reflects the fair value of such
securities. Short-term instruments maturing within 60 days may be valued
at amortized cost, provided that the Board of Directors determines that
amortized cost represents fair value.
The Money Market Portfolio's net asset value per share is determined by
dividing the value of all securities and all other assets, less
liabilities, by the number of shares outstanding. The Portfolio's
investments are valued in accordance with Rule 2a-7 under the Investment
Company Act of 1940 based on their amortized cost, which does not take
into account unrealized appreciation or depreciation. The Fund's Board of
Directors has established procedures reasonably designed to stabilize the
net asset value per share at $1.00, although there is no assurance that
the Portfolio will be able to do so.
23
<PAGE> 28
INVESTING IN THE FUND
Share Purchases
- --------------------------------------------------------------------------------
To purchase shares of the Portfolios, investors may open an account by
calling the Distributor at (800) 527-3713 and obtaining an application
form. After a completed application form has been received and processed,
orders to purchase shares of the Portfolios may be made by telephoning
the Distributor.
Purchase orders are accepted on each Business Day and become effective
upon receipt and acceptance by the Fund. (As used in this Prospectus, the
term "Business Day" means any day on which the Adviser and PFPC Trust
Company are both open for business.) Payment must be in the form of
federal funds. Wire transfer instructions for federal funds should be as
follows: PFPC Trust Company, Philadelphia, PA, ABA 031 000 053; BNF
Mutual Funds Services / 8529992181; For purchase of Asset Management
Fund, (Name of Portfolio); From: (Name of Investor); Account Number
(Investor's account number with the Fund); $(Amount to be invested).
For an investor's purchase to be eligible for same day settlement, the
purchase order must be received on a Business Day before 12:00 Noon, New
York City time (or 1:00 P.M., New York City time, for Pacific time zone
investors as determined by their addresses in the Fund's records), and
payment for the purchase order must be received by PFPC Trust Company by
4:00 P.M., New York City time, of that day. For investors seeking next
day settlement, the purchase order must be received on a Business Day
before 4:00 P.M., New York City time, and payment must be received by
PFPC Trust Company by 4:00 P.M., New York City time, on the next Business
Day after the purchase order was received. An investor must indicate to
the Fund at the time the order is placed whether same day or next day
settlement is sought. Payment must be received by PFPC Trust Company by
4:00 P.M., New York City time, on the Business Day designated for
settlement or the order will be cancelled.
A purchase order is considered binding upon the investor. Should it be
necessary to cancel an order because payment was not timely received, the
Fund will hold the investor responsible for the difference between the
price of the shares when ordered and the price of the shares when the
order was cancelled. If the investor is already a shareholder of the
Fund, the Fund may redeem shares from the investor's account in an amount
equal to such difference. In addition, the Fund may prohibit or restrict
the investor from making future purchases of the Fund's shares.
Any federal funds received in respect of a cancelled order will be
returned upon instructions from the sender without any liability of the
Fund, the Adviser or PFPC Trust Company. If it is not possible to return
such federal funds the same day, the sender will not have the use of such
funds until the next day on which it is possible to effect such return.
The Fund reserves the right to reject any purchase order.
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<PAGE> 29
Minimum Investment Required
- --------------------------------------------------------------------------------
The minimum initial investment in each Portfolio is $10,000. There is no
minimum balance. Subsequent purchases may be made in any amount.
What Shares Cost
- --------------------------------------------------------------------------------
Shares of the Portfolios are sold at their net asset value next
determined after the purchase order becomes effective. The Money Market
Portfolio seeks to maintain a net asset value of $1.00 per share. (See
"Net Asset Value.") There is no sales charge imposed by the Portfolios.
For all Portfolios other than the Money Market Portfolio, the net asset
value is determined each Business Day at 4:00 P.M., New York City time.
For the Money Market Portfolio, net asset value is determined twice on
each Business Day, at 1:00 P.M. and at 4:00 P.M., New York City time. Net
asset value for purposes of pricing redemption orders is determined at
4:00 P.M., New York City time, on any day redemptions are permitted and a
proper redemption request is received (see "Redeeming Shares").
Confirmations
- --------------------------------------------------------------------------------
As transfer and dividend agent for the Fund, PFPC maintains a share
account for each stockholder. Detailed confirmations of each purchase or
redemption are sent to each stockholder. Monthly confirmations are sent
to report dividends paid during the month.
Dividends
- --------------------------------------------------------------------------------
Dividends are declared daily and paid monthly. Such dividends are
declared immediately prior to 4:00 P.M., New York City time, and are
automatically reinvested in additional shares of the respective
Portfolios unless the stockholder requests cash payments by contacting
the Distributor.
For all Portfolios other than the Money Market Portfolio, an investor
will receive the dividend declared on both the day its purchase order is
settled and the day its redemption order is effected, including any next
succeeding non-Business Day or Days, since proceeds are normally wired
the next Business Day. For the Money Market Portfolio, an investor will
receive the dividend declared on the day its purchase order is settled
but will not receive the dividend declared on the day its redemption
order is effected.
Capital Gains
- --------------------------------------------------------------------------------
Net capital gains, if any, realized by a Portfolio are declared and paid
once each year and reinvested in shares or, at the stockholder's option,
paid in cash.
25
<PAGE> 30
REDEEMING SHARES
The Portfolios redeem shares at their respective net asset values next
determined after the Distributor receives the redemption request.
Redemptions may be made on Business Days when the U.S. Government and
agency securities market is open. Redemption requests must be received in
proper form and can be made by telephone or in writing.
Telephone Redemption
- --------------------------------------------------------------------------------
- For all Portfolios other than the Money Market Portfolio:
Stockholders may redeem their shares by telephoning the Distributor on
a Business Day. Call (800) 527-3713. The time the redemption request is
received determines when proceeds are sent and the accrual of
dividends. Redemptions received prior to 12:00 Noon, New York City time
(1:00 P.M., New York City time, for investors in the Pacific time
zone), on a Business Day or other day redemptions are permitted, are
effected on the same day, immediately after 4:00 P.M., New York City
time. This means that proceeds will normally be wired in federal funds
to the stockholder's bank or other account shown on the Fund's records
the next Business Day, but in no case later than seven days. A
stockholder will receive dividends declared only through the day its
redemption is effected and any next succeeding non-Business Day or
Days. All redemptions received between 12:00 Noon and 4:00 P.M., New
York City time, on a Business Day or other day redemptions are
permitted, are effected on the same day, immediately after 4:00 P.M.,
New York City time; however, the proceeds will normally be sent the
second following Business Day. The stockholder will receive dividends
declared only through the day its redemption is effected, including any
next succeeding non-Business Day or Days, but will not be entitled to
dividends for the following Business Day. The Fund recommends that all
redemption requests be placed so as to be received prior to 12:00 Noon,
New York City time, because of the advantage in having proceeds sent
the next Business Day.
- For the Money Market Portfolio:
Stockholders may redeem their shares by telephoning the Distributor on
a Business Day. Call (800) 527-3713. If the request is received before
12:00 Noon, New York City time (1:00 P.M., New York City time, for
investors in the Pacific time zone), on a Business Day, the redemption
will be effected as of 1:00 P.M., New York City time, and the proceeds
will normally be wired the same day in federal funds to the
stockholder's bank or other account shown on the Fund's records, but in
no case later than seven days. If the request is received before 4:00
P.M., New York City time, on a Business Day or other day redemptions
are permitted, the redemption will be effected as of 4:00 P.M., New
York City time, and the proceeds will normally be wired the next
Business Day.
26
<PAGE> 31
Since a stockholder will not receive any dividend declared on the day
its redemption request is effected, the Fund recommends that all
redemption requests be placed so as to be received prior to 12:00 Noon,
New York City time.
Written Requests
- --------------------------------------------------------------------------------
Portfolio shares may also be redeemed by sending a written request to the
Distributor, 230 W. Monroe Street, Chicago, Illinois 60606; Attention:
Asset Management Fund, Inc. If share certificates have been issued, they
must be properly endorsed and guaranteed and be received by PFPC before
the redemption will be effected.
Signatures
Signatures on written redemption requests and share certificates must be
guaranteed by:
- a Federal Home Loan Bank; or
- a savings association or a savings bank; or
- a trust company or a commercial bank; or
- a member firm of a domestic securities exchange or a registered
securities association; or
- a credit union or other eligible guarantor institution.
In certain instances, the transfer and dividend agent may request
additional documentation believed necessary to insure proper
authorization. Stockholders with questions concerning documentation
should call the Distributor at (800) 527-3713.
Receiving Payment
Proceeds of written redemption requests are sent at the same time and in
the same manner as for telephone redemptions, based on the time of the
receipt in proper form.
EXCHANGES
Stockholders may exchange shares of a Portfolio with shares in another
Portfolio of the Fund by telephoning the Distributor on a Business Day.
Call (800) 527-3713. Exchanges may also be made by written request as
previously described under "Written Requests." Exchanges will be effected
at the relative net asset values next determined after receipt of an
exchange request in proper form. Stockholders will receive dividends in
the Portfolio through the date the exchange is effected and will begin
receiving dividends in the other Portfolio the next Business Day.
27
<PAGE> 32
An exchange between Portfolios will normally involve realization of a
capital gain or loss, since for federal income tax purposes an exchange
is treated as a sale of the shares from which the exchange is made and a
purchase of the shares into which the exchange is made.
The Fund reserves the right to amend or terminate this privilege with
notice to stockholders.
STOCKHOLDER INFORMATION
Voting Rights
- --------------------------------------------------------------------------------
The Fund has five Portfolios: the Money Market Portfolio, the Short U.S.
Government Securities Portfolio, the Adjustable Rate Mortgage (ARM)
Portfolio, the Intermediate Mortgage Securities Portfolio and the U.S.
Government Mortgage Securities Portfolio, and five classes of shares,
representing interests only in the corresponding Portfolio and having
equal voting rights within each class. The Fund's charter provides that
on any matter submitted to a vote of stockholders, all shares,
irrespective of class, shall be voted in the aggregate and not by class,
except that (i) as to any matter with respect to which a separate vote of
any class is required by the Investment Company Act of 1940 or the
Maryland General Corporation Law, such requirements as to a separate vote
by that class shall apply in lieu of the aggregate voting as described
above, and (ii) as to any matter which does not affect the interest of a
particular class, only stockholders of the affected class shall be
entitled to vote thereon. The Bylaws of the Fund require that a special
meeting of stockholders be held upon the written request of stockholders
holding not less than 10% of the issued and outstanding shares of the
Fund.
Tax Information
- --------------------------------------------------------------------------------
Each of the Portfolios has not been required to pay federal income taxes
because it has taken all necessary action to qualify as a regulated
investment company under the Internal Revenue Code. Each Portfolio
intends to remain so qualified for its future taxable years so long as
such qualification is in the best interests of stockholders.
The Fund intends to distribute all of the net income and any gains of the
Portfolios to stockholders. Unless otherwise exempt, stockholders are
required to pay federal income tax on any dividends and other
distributions received. This applies whether dividends are received in
cash or as additional shares. Dividends declared in December to
stockholders of record as of a date in that month and paid during the
following January are treated as if received on December 31 of the
calendar year declared.
Information on the tax status of dividends and distributions is provided
annually.
28
<PAGE> 33
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Fund's financial performance for the past 5 years. Certain information
reflects financial results for a single Portfolio share outstanding
throughout each year. The total returns in the tables represent the rate
that an investor would have earned on an investment in a particular
portfolio (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose
report, along with each Portfolio's financial statements, is included in
the Statement of Additional Information, which is available upon request.
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. .0523 .0513 .0516 .0547 .0346
Net realized and unrealized gain
(loss) on investments............. -0- -0- -0- -0- -0-
-------- -------- -------- -------- --------
Total from investment operations... .0523 .0513 .0516 .0547 .0346
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders from
net investment income............. (.0523) (.0513) (.0516) (.0547) (.0346)
-------- -------- -------- -------- --------
Net asset value, end of year........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return........................ 5.35% 5.25% 5.29% 5.60% 3.51%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)............................ $ 58,445 $ 48,104 $ 69,484 $ 36,869 $ 82,969
Ratio of expenses to average net
assets............................ 0.25%(1) 0.26%(1) 0.24%(1) 0.24%(1) 0.40%(1)
Ratio of net investment income to
average net assets................ 5.22% 5.14% 5.15% 5.40% 3.34%
</TABLE>
- --------------------------------------------------------------------------------
(1) Without fees waivers for the years ended October 31, 1998, 1997, 1996, 1995
and 1994, the ratios of expenses to average net assets would have been .40%,
.41%, .39%, .39% and .42%, respectively.
29
<PAGE> 34
SHORT U.S. GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................... $ 10.55 $ 10.56 $ 10.68 $ 10.45 $ 10.89
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. .6144 .6273 .6370 .6746 .5396
Net realized and unrealized gain
(loss) on investments............. .1100 (.0100) (.1200) .2300 (.4400)
-------- -------- -------- -------- --------
Total from investment operations... .7244 .6173 .5170 .9046 .0996
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders
from net investment income........ (.6144) (.6273) (.6370) (.6746) (.5396)
-------- -------- -------- -------- --------
Net asset value, end of year........ $ 10.66 $ 10.55 $ 10.56 $ 10.68 $ 10.45
======== ======== ======== ======== ========
Total return........................ 7.08% 6.04% 4.99% 8.94% 0.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)............................ $114,240 $112,304 $176,892 $167,343 $179,740
Ratio of expenses to average net
assets............................ 0.50% 0.50% 0.48% 0.49% 0.47%
Ratio of net investment income to
average net assets................ 5.83% 5.97% 6.02% 6.42% 5.04%
Portfolio turnover rate............ 84% 75% 69% 112% 195%
</TABLE>
- --------------------------------------------------------------------------------
30
<PAGE> 35
ADJUSTABLE RATE MORTGAGE (ARM) PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 9.99 $ 9.95 $ 9.94 $ 9.78 $ 10.02
-------- -------- -------- -------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........ .5676 .6036 .5958 .6035 .4396
Net realized and unrealized
gain (loss) on
investments............... (.0800) .0400 .0100 .1600 (.2400)
-------- -------- -------- -------- ----------
Total from investment
operations................ .4876 .6436 .6058 .7635 .1996
-------- -------- -------- -------- ----------
LESS DISTRIBUTIONS:
Dividends paid to
stockholders
from net investment
income.................. (.5676) (.6036) (.5958) (.6035) (.4396)
-------- -------- -------- -------- ----------
Net asset value, end of year... $ 9.91 $ 9.99 $ 9.95 $ 9.94 $ 9.78
======== ======== ======== ======== ==========
Total return................... 5.00% 6.65% 6.27% 8.02% 2.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's).................... $895,550 $751,334 $796,016 $891,538 $1,045,914
Ratio of expenses to average
net assets................ 0.49%(1) 0.49%(1) 0.47%(1) 0.48%(1) 0.47%(1)
Ratio of net investment
income to average net
assets.................... 5.70% 6.07% 6.01% 6.12% 4.40%
Portfolio turnover rate...... 53% 74% 60% 68% 65%
</TABLE>
- --------------------------------------------------------------------------------
(1) Without fee waivers for the years ended October 31, 1998, 1997, 1996, 1995
and 1994, the ratios of expenses to average net assets would have been .79%,
.79%, .77%, .78% and .76%, respectively.
31
<PAGE> 36
INTERMEDIATE MORTGAGE SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year.............................. $ 9.62 $ 9.52 $ 9.68 $ 9.34 $ 10.00
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. .5932 .6245 .6101 .6211 .5407
Net realized and unrealized gain
(loss) on investments.......... .0761 .1000 (.1600) .3400 (.6600)
------- ------- ------- -------- --------
Total from investment
operations..................... .6693 .7245 .4501 .9611 (.1193)
------- ------- ------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income........ (.5932) (.6245) (.6101) (.6211) (.5407)
In excess of net investment
income......................... (.0361) -0- -0- -0- -0-
------- ------- ------- -------- --------
Total distributions to
stockholders................... (.6293) (.6245) (.6101) (.6211) (.5407)
------- ------- ------- -------- --------
Net asset value, end of year........ $ 9.66 $ 9.62 $ 9.52 $ 9.68 $ 9.34
======= ======= ======= ======== ========
Total return........................ 7.18% 7.90% 4.82% 10.63% (1.18%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
000's)......................... $99,438 $77,982 $92,289 $187,087 $213,427
Ratio of expenses to average net
assets......................... 0.49%(1) 0.49%(1) 0.44%(1) 0.38%(1) 0.39%(1)
Ratio of net investment income to
average net assets............. 6.17% 6.58% 6.38% 6.55% 5.61%
Portfolio turnover rate........... 69% 120% 133% 133% 358%
</TABLE>
- --------------------------------------------------------------------------------
(1) Without fee waivers for the years ended October 31, 1998, 1997, 1996, 1995
and 1994, the ratios of expenses to average net assets would have been .59%,
.59%, .58%, .58% and .59%, respectively.
32
<PAGE> 37
U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......... $ 10.67 $ 10.51 $ 10.68 $ 10.23 $ 11.28
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... .6947 .7344 .7479 .7703 .7296
Net realized and unrealized gain (loss) on
investments.............................. .0877 .1600 (.1700) .4500 (.9300)
------- ------- ------- ------- -------
Total from investment operations.......... .7824 .8944 .5779 1.2203 (.2004)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income................ (.6947) (.7344) (.7479) (.7703) (.7296)
In excess of net investment income........ (.0277) -0- -0- -0- -0-
From net realized gains................... -0- -0- -0- -0- (.1200)
------- ------- ------- ------- -------
Total distributions to stockholders....... (.7224) (.7344) (.7479) (.7703) (.8496)
------- ------- ------- ------- -------
Net asset value, end of year.............. $ 10.73 $ 10.67 $ 10.51 $ 10.68 $ 10.23
======= ======= ======= ======= =======
Total return.............................. 7.58% 8.87% 5.63% 12.37% (1.82%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)........ $80,174 $53,572 $57,267 $62,258 $60,613
Ratio of expenses to average net assets... 0.53% 0.53% 0.52% 0.53% 0.51%
Ratio of net investment income to average
net assets............................... 6.48% 7.01% 7.10% 7.39% 6.81%
Portfolio turnover rate................... 93% 135% 165% 177% 376%
</TABLE>
- --------------------------------------------------------------------------------
33
<PAGE> 38
NEW ACCOUNT APPLICATION
ASSET MANAGEMENT FUND, INC. (AMF)
I. HOW TO OPEN YOUR AMF ACCOUNT AND PURCHASE SHARES
- Please complete the requested information. You may call toll free to open
a temporary account, 1-800-527-3713, or fax your completed application to
(312) 214-1424. Mail the original completed application to the Fund's
distributor, Shay Financial Services, Inc., 230 W. Monroe Street, Chicago,
IL 60606. Your new AMF account number will be assigned.
TO PLACE YOUR ORDER
- Call toll free 1-800-527-3713 to place your order and confirm wire
instructions.
- Wire funds to:
PFPC Trust Company, ABA 031 000 053
BNF Mutual Fund Services / 8529992181
Portfolio Name (Money Market Portfolio, Short U.S. Government Securities
Portfolio,
Adjustable Rate Mortgage (ARM) Portfolio, Intermediate Mortgage
Securities
Portfolio or U.S. Government Mortgage Securities Portfolio)
Customer Name
Account Number
- Written confirmations and monthly statements of your AMF transactions will
be mailed to you.
II. ACCOUNT REGISTRATION
Name of Institution
-----------------------------------------------------------------------------
Attention
-----------------------------------------------------------------------------
E-Mail Address
-----------------------------------------------------------------------------
Mailing Address
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Phone Number
-----------------------------------------------------------------------------
Fax Number
-----------------------------------------------------------------------------
Tax Identification Number
-----------------------------------------------------------------------------
<PAGE> 39
III. REDEMPTION
Please provide complete instructions for wiring of redemption proceeds in
Federal funds to your account with a bank or trust company.
Name of Bank
or Trust Company
-----------------------------------------------------------------------------
Street Address
-----------------------------------------------------------------------------
City, State, Zip
-----------------------------------------------------------------------------
ABA Number
-----------------------------------------------------------------------------
Account Name
-----------------------------------------------------------------------------
Account Number
-----------------------------------------------------------------------------
IV. DIVIDENDS
Please select "Cash" or "Reinvest" for your dividend distributions. [
] Cash [ ] Reinvest
V. PHONE ORDER AUTHORIZATIONS
Please list individuals (up to three) who are authorized to make purchases
and redemptions by phone:
- Name
-----------------------------------------------------------------------------
Phone
-----------------------------------------------------------------------------
- Name
-----------------------------------------------------------------------------
Phone
-----------------------------------------------------------------------------
- Name
-----------------------------------------------------------------------------
Phone
-----------------------------------------------------------------------------
AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
Name (print or type)
- --------------------------------------------------------------------------------
Title
- --------------------------------------------------------------------------------
Phone Number
- --------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
<PAGE> 40
SHAREHOLDER REFERENCE INFORMATION
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shay Financial Services, Inc.
230 West Monroe Street
Chicago, Illinois 60606
Investment Adviser
Shay Assets Management, Inc.
230 West Monroe Street
Chicago, Illinois 60606
ADMINISTRATOR AND TRANSFER AND
DIVIDEND AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
Custodian
PFPC Trust Company
17th & Chestnut Streets
Philadelphia, Pennsylvania 19101
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
DIRECTORS AND OFFICERS
Richard M. Amis
Director
Arthur G. De Russo
Director
David F. Holland
Director
Gerald J. Levy
Director and Vice Chairman
Rodger D. Shay
Director and Chairman
Edward E. Sammons, Jr.
President and Treasurer
Robert T. Podraza
Vice President and Assistant Treasurer
Daniel K. Ellenwood
Secretary
Doris J. Pavel
Assistant Secretary
Additional information about the Portfolios' may be found in the Statement of
Additional Information. The Statement of Additional Information contains more
detailed information on fund investments and operations. The semiannual and
annual shareholder reports contain a discussion of the market conditions and the
investment strategies that significantly affected the Portfolios' performance
during the last fiscal year, as well as a listing of portfolio holdings and
financial statements. These documents may be obtained without charge from the
following sources:
By Phone:
1-800-527-3713
By Mail:
Shay Financial Services, Inc.
Attn: Asset Management Fund, Inc.
230 West Monroe Street
Chicago, IL 60606
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(a duplication fee is charged)
In Person:
Public Reference Room
Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330 for more information)
By Internet:
http://www.amffunds.com
http://www.sec.gov
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number: Asset Management Fund, Inc. 811-3541
<PAGE> 41
[ASSET MANAGEMENT FUND, INC. LOGO]
230 West Monroe Street, Chicago, IL 60606 - 1-800-527-3713
<PAGE> 42
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
ADJUSTABLE RATE MORTGAGE (ARM) PORTFOLIO,
INTERMEDIATE MORTGAGE SECURITIES PORTFOLIO
AND
U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO
ASSET MANAGEMENT FUND, INC.
230 WEST MONROE STREET, CHICAGO, ILLINOIS 60606
The Adjustable Rate Mortgage (ARM) Portfolio (the "ARM Portfolio"), the
Intermediate Mortgage Securities Portfolio (the "Intermediate Mortgage
Portfolio") and the U.S. Government Mortgage Securities Portfolio (the "U.S.
Government Mortgage Portfolio") (each, a "Portfolio" and collectively, the
"Portfolios") are each a portfolio of Asset Management Fund, Inc. (the "Fund"),
a professionally managed, diversified, open-end investment company. Each
Portfolio is represented by a class of shares separate from those of the Fund's
other portfolios.
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Fund's Prospectus, dated March 1, 1999 (the
"Prospectus"), a copy of which may be obtained from the Fund at the address
noted above.
The financial statements pertaining to these portfolios which appear in
the Fund's 1998 Annual Report to Shareholders are incorporated herein by
reference.
<PAGE> 43
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
FUND HISTORY.................................................................................1
THE FUND'S OBJECTIVE, THE PORTFOLIOS AND THEIR MANAGEMENT POLICIES...........................1
PURCHASE AND REDEMPTION OF SHARES............................................................5
DIVIDENDS, DISTRIBUTIONS, YIELD AND TOTAL RETURN QUOTATIONS..................................5
MANAGEMENT OF THE FUND.......................................................................6
INVESTMENT ADVISER AND ADMINISTRATOR........................................................11
DISTRIBUTOR.................................................................................13
ADMINISTRATOR AND TRANSFER AND DIVIDEND AGENT...............................................15
CUSTODIAN...................................................................................16
DETERMINATION OF NET ASSET VALUE............................................................16
TAXES.......................................................................................16
PORTFOLIO TRANSACTIONS......................................................................17
INVESTMENT RESTRICTIONS.....................................................................18
ORGANIZATION AND DESCRIPTION OF FUND SHARES.................................................21
COUNSEL AND INDEPENDENT ACCOUNTANTS.........................................................21
GENERAL INFORMATION.........................................................................21
DESCRIPTION OF DEBT RATINGS.................................................................22
FINANCIAL STATEMENTS........................................................................22
</TABLE>
<PAGE> 44
Capitalized terms not defined in this Statement of Additional
Information and defined in the Prospectus shall have the meanings defined in the
Prospectus.
FUND HISTORY
The Fund is a Maryland corporation which commenced operations as an
open-end management investment company on November 9, 1982. In September 1994,
the Fund changed its name from Asset Management Fund for Financial Institutions,
Inc. to Asset Management Fund, Inc. In June 1992, the Intermediate Mortgage
Portfolio changed its name from the Corporate Bond Portfolio to its present
name. In September 1994, the U.S. Government Mortgage Portfolio changed its name
from the Mortgage Securities Performance Portfolio to its present name.
THE FUND'S OBJECTIVE, THE PORTFOLIOS
AND THEIR MANAGEMENT POLICIES
MORTGAGE-RELATED SECURITIES
Most Mortgage-Related Securities provide a monthly payment that
consists of both interest and principal payments. In effect, these payments are
a "pass-through" of the monthly payments made by individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by unscheduled payments
resulting from the sale of the underlying residential property, refinancing or
foreclosure net of fees or costs which may be incurred. Some Mortgage-Related
Securities have additional features that entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
regardless of whether or not the mortgagor actually makes the payment. Any
guarantees of interest and principal payments may be either as to timely or
ultimate payment.
The average maturity of pass-through pools varies with the maturities
of the underlying mortgage instruments. In addition, a pool's average maturity
may be shortened by unscheduled or early payments of principal and interest on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, and the
location and age of the mortgage. Since prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool or group of pools. However, the average life will be
substantially less than the stated maturity.
The Prospectus indicates that U.S. Mortgage-Related Securities may be
classified into two principal categories, based on whether the issuer or
guarantor of the security or the underlying collateral is a governmental entity,
such as GNMA, or a government-related entity, such as FNMA and FHLMC which are
U.S. Government sponsored corporations. In addition, Private Mortgage
Related-Securities represent interests in, or are collateralized by, pools
consisting principally of residential mortgage loans created by non-governmental
issuers. The following information supplements that in each Prospectus
concerning certain of these issuers:
FNMA is subject to general regulation by the Secretary of Housing and
Urban Development. Its common stock is publicly traded on the New York Stock
Exchange. FNMA purchases residential mortgages from a list of approved seller
services, which include Federal and state savings associations, savings banks,
commercial banks, credit unions and mortgage bankers.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its common and
preferred stock is publicly traded on the New York Stock Exchange. FHLMC issues
Participation Certificates ("PCS") which represent interests in mortgages from
FHLMC's national portfolio.
With respect to Private Mortgage-Related Securities, timely payment of
interest and principal may be supported by various forms of credit enhancements,
including individual loan, title, pool and hazard insurance. These credit
enhancements may offer two types of protection: (i) liquidity protection, and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures ultimate
payment of the
<PAGE> 45
obligations on at least a portion of the assets in the pool. Such protection may
be provided through guarantees, insurance policies or letters of credit obtained
by the issuer or sponsor from third parties or through various means of
structuring the transaction as well as a combination of such approaches. The
Portfolios will not pay any additional fees for such credit support, although
the existence of credit support may increase the price of a security.
Credit enhancements can come from external providers such as banks or
financial insurance companies. Alternatively, they may come from the structure
of a transaction itself. Examples of credit support arising out of the structure
of the transaction include "senior-subordinated securities" (multiple class
securities with one or more classes subordinate to other classes as to the
payment of principal thereof and interest thereon, with the result that defaults
on the underlying assets are borne first by the holders of the subordinated
class), creation of "reserve funds" (where cash or investments, sometimes funded
from a portion of the payments on the underlying assets, are held in reserve
against future losses) and "overcollateralization" (where the scheduled payments
on, or the principal amount of, the underlying assets exceeds that required to
make payment of the securities and pay any servicing or other fees). The degree
of credit support provided for each issue is generally based on historical
information respecting the level of credit risk associated with the underlying
assets. Delinquencies or losses in excess of those anticipated could adversely
affect the return on an investment in such issue. There can be no assurance that
the private insurers can meet their obligations under the policies.
Each Portfolio may only invest in Private Mortgage-Related Securities
to the extent it observes the investment restrictions and limitations required
for such investments under OTS Regulations. These investments include
"mortgage-related securities" as that term is defined in Section 3(a)(41) of the
Securities Exchange Act of 1934, subject to any OTS Regulations, and securities
offered and sold pursuant to Section 4(5) of the Securities Act of 1933. Section
3(a)(41) of the Securities Exchange Act of 1934, as amended, defines a
"mortgage-related security" as one that is rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization, and that either (A) represents ownership of one or more promissory
notes or other instruments that are secured by a first lien on property on which
is located a residential or mixed residential and commercial structure, on a
residential manufactured home or one or more commercial structures, and that
were originated by a savings association, savings bank, commercial bank, credit
union, insurance company or similar institution which is supervised and examined
by a Federal or state authority or by a mortgage lender approved by the
Secretary of Housing and Urban Development, or (B) is secured by one or more
promissory notes or other instruments meeting the requirements set forth above
that by its terms provides for payments of principal in relation to payments or
reasonable projections of payments. Section 4(5) of the Securities Act of 1933
exempts from registration thereunder offers or sales of one or more promissory
notes or other instruments that are secured by a first lien on property on which
is located a residential or mixed residential and commercial structure and that
were originated by a savings association, savings bank, commercial bank or
similar banking institution which is supervised or examined by Federal or state
authorities, or mortgage lenders approved by the Department of Housing and Urban
Development that sell to such institutions, provided that they are sold in
minimum amounts of $250,000 and payment is made within 60 days.
ADJUSTABLE RATE MORTGAGE SECURITIES
The interest rates paid on the mortgages underlying the ARMS in which
the Portfolios invest generally are readjusted at intervals of one year or less
to an increment over some predetermined interest rate index. There are three
main categories of indices: those based on U.S. Treasury securities and those
derived from a calculated measure such as a cost of funds index or a moving
average of mortgage rates. Commonly utilized indices include the one-year,
three-year and five-year constant maturity Treasury rates, the three-month
Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
London Interbank Offered Rate (LIBOR), rates on six month certificates of
deposit, the prime rate of a specific bank, or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror
changes in market interest rate levels. Others, such as the 11th District Home
Loan Bank Cost of Funds index, tend to lag behind changes in market rate levels
and tend to be somewhat less volatile.
2
<PAGE> 46
The underlying mortgages that collateralize the ARMS in which the
Portfolios invest 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
per reset or adjustment interval and 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.
COLLATERALIZED MORTGAGE OBLIGATIONS
CMOs and REMICs that are Multi-Class Mortgage-Related Securities
represent a beneficial interest in a pool of mortgage loans or mortgage-backed
securities typically held by a trust. The beneficial interests are evidenced by
certificates issued pursuant to a pooling and servicing agreement. The
certificates are usually issued in multiple classes with the specific rights of
each class set forth in the pooling and servicing agreement and the offering
documents for the security. The pooling and servicing agreement is entered into
by a trustee and a party that is responsible for pooling and conveying the
mortgage assets to the trust, sometimes referred to as the depositor. Various
administrative services related to the underlying mortgage loans, such as
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts and collection of insurance claims are provided by
services. A master servicer, which may be the depositor or an affiliate of the
depositor, is generally responsible for supervising and enforcing the
performance by the services of their duties and maintaining the insurance
coverages required by the terms of the certificates. In some cases, the master
servicer acts as a servicer of all or a portion of the mortgage loans.
OTHER PERMISSIBLE INVESTMENTS
The following information supplements the discussion in the Prospectus
concerning principal investment strategies:
U.S. Government or Agency Securities. Each Portfolio may invest in
obligations issued or guaranteed by the United States or certain agencies or
instrumentalities thereof or a U.S. Government-sponsored corporation. These
include obligations issued by the United States or by a Federal Home Loan Bank,
Freddie Mac, Fannie Mae, the Government National Mortgage Association, the
Student Loan Marketing Association and the Federal Farm Credit Banks. Since many
of these U.S. Government securities are not backed by the "full faith and
credit" of the United States, the Portfolio must look principally to the agency
or instrumentality or corporation issuing or guaranteeing such obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality or corporation does not
meet its commitment.
Certificates of Deposit. Each Portfolio may invest in certificates of
deposit issued by, and other time deposits in foreign branches of, FDIC insured
banks. Investment in such deposits involves somewhat different investment risks
from those affecting deposits in United States branches of, such banks. These
risks, which might adversely affect the payment of principal and interest on
such deposits, include future political and economic developments, the
possibility that a foreign jurisdiction might impose withholding taxes on
interest income payable on such deposits, the possible seizure or
nationalization of foreign deposits, or the possible adoption of foreign
governmental restrictions, such as exchange controls.
Repurchase Agreements. Each Portfolio may enter into repurchase
agreements, under which it may acquire a security which it may invest in for a
relatively short period (usually not more than 30 days) subject to an obligation
of the seller to repurchase and the Portfolio to resell the instrument at a
fixed price and time, thereby determining the yield during the Portfolio's
holding period. If the seller defaults in its obligation to repurchase from the
Portfolio the underlying instrument, which in effect constitutes collateral for
the seller's obligation, at the price and time fixed in the repurchase
agreement, the Portfolio might incur a loss if the value of the collateral
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization upon the collateral by the Portfolio may be delayed or
limited. Each Portfolio will always receive as collateral instruments whose
market value, including accrued interest, will be at least equal to 100% of the
dollar amount invested by the Portfolio in each agreement, and each Portfolio
will make payment for such instruments only upon their physical delivery to, or
evidence of their book entry transfer to the account of, the Portfolio's
custodian.
3
<PAGE> 47
Each Portfolio will not enter into any repurchase agreements maturing
in more than 60 days. Each Portfolio enters into repurchase agreements with
primary government securities dealers.
FDIC Insured Institutions. Although each Portfolio's investment in
savings accounts and in certificates of deposit and other time deposits in an
FDIC Insured Institution is insured to the extent of $100,000 by the Federal
Deposit Insurance Corporation, the Portfolio may invest more than $100,000 with
a single Institution, and any such excess and any interest on the investment
would not be so insured. In addition, deposits in foreign branches of FDIC
insured banks, are not insured by the Federal Deposit Insurance Corporation.
Each Portfolio will invest in securities issued by an FDIC Insured
Institution only if such Institution or a security issued by such institution
(i) has a short-term debt obligation rating in the highest category by one
nationally recognized statistical rating organization, or (ii) if no such
ratings are available, has comparable quality in the opinion of the Portfolio's
investment adviser under the general supervision of the Board of Directors of
the Fund.
When-Issued and Delayed Delivery Securities. Securities purchased on a
when-issued or delayed delivery basis are subject to market fluctuation, and no
interest accrues to the Portfolios until delivery and payment take place. At the
time each Portfolio makes the commitment to purchase securities on a when-issued
or delayed delivery basis, it will record the transaction and thereafter reflect
the value each day of such securities in determining its net asset value. To
facilitate acquisitions of securities purchased on a when-issued or delayed
delivery basis, each Portfolio will maintain with its custodian a separate
account with marketable portfolio securities in an amount at least equal to such
commitments. On delivery dates for such transactions, the Portfolio will meet
its obligations from maturities or sales of the securities held in the separate
account and/or from available cash.
Other Current Policies. Under current policies of the Board of
Directors, the Fund has adopted certain voluntary restrictions with respect to
the Portfolios' investments. These restrictions apply to all three Portfolios
unless specified below:
(1) prohibit the purchase of obligations of Federal Land Banks, Federal
Intermediate Credit Banks, the Export-Import Bank of the United States,
the Commodity Credit Corporation, the National Credit Union
Administration and the Tennessee Valley Authority;
(2) limit the use of repurchase agreements to repurchase agreements
involving obligations of the U.S. Government, including zero coupon
Treasury securities that have been stripped of either principal or
interest by the U.S. Government so long as the maturity of these
securities does not exceed ten years, and obligations of the Federal
Home Loan Banks, Fannie Mae, the Government National Mortgage
Association, the Federal Farm Credit Banks, the Federal Financing Bank,
the Student Loan Marketing Association and Freddie Mac;
(3) for the ARM Portfolio and Intermediate Mortgage Portfolio, limit the
maturities of bankers' acceptances to six months and prohibit
investments in bankers' acceptances of Edge Act corporations guaranteed
by their FDIC-insured parent banks until such time as the
appropriateness of these investments for federal credit unions is
clarified;
(4) for the ARM Portfolio, to prohibit investments in interest rate
caps and floors until such time as the appropriateness of these
investments for federal credit unions is clarified;
(5) for the U.S. Government Mortgage Portfolio, to prohibit investments in
reverse repurchase agreements, interest rate futures contracts, options
and options on interest rate futures contracts, in each case until such
time as federal credit unions may invest in them without limitation;
and
(6) for the U.S. Government Mortgage Portfolio, prohibit loans of federal
funds.
Although these restrictions are not fundamental policies of the Fund
and may be changed without stockholder vote, the Fund will not alter these
restrictions without notice to stockholders.
4
<PAGE> 48
PORTFOLIO TURNOVER
Each Portfolio may engage in trading of the portfolio securities to
take advantage of market variations and to enhance liquidity. The portfolio
turnovers are set forth for certain periods in the tables under "Financial
Highlights."
PURCHASE AND REDEMPTION OF SHARES
The Fund believes that shares of each Portfolio qualify as investments
not subject to percentage of assets limitations under Section 5(c)(1)(Q) of the
Home Owners' Loan Act of 1933, as amended, and the OTS Regulations thereunder
governing investments by federal savings associations, as defined in such Act,
which includes federal savings banks chartered under such Act. In addition,
shares of each Portfolio are eligible for purchase by national banks and federal
credit unions without limitation under applicable federal law.
Investors may be charged a fee if they effect transactions through a
broker or agent. Brokers and intermediaries are authorized to accept orders on
the Fund's behalf.
The Fund reserves the right to suspend the right of redemption and to
postpone the date of payment upon redemption (1) for any period during which the
New York Stock Exchange (the "Exchange") is closed, other than customary weekend
and holiday closings, or during which trading on the Exchange is restricted, (2)
for any period during which an emergency, as defined by the rules of the
Securities and Exchange Commission, exists as a result of which (i) disposal by
the Fund of securities held by each Portfolio is not reasonably practicable, or
(ii) is not reasonably practicable for the Fund to determine the value of the
Portfolio's net assets, or (3) for such other periods as the Securities and
Exchange Commission, or any successor governmental authority, may by order
permit for the protection of stockholders of each Portfolio.
DIVIDENDS, DISTRIBUTIONS, YIELD
AND TOTAL RETURN QUOTATIONS
Dividends on shares of each Portfolio are paid monthly on the first
Business Day of each month.
Net investment income of each Portfolio for dividend purposes (from the
time of the immediately preceding determination thereof) will consist of (i)
interest accrued and discount earned (including both original issue and market
discount) less amortization of any premium, (ii) less accrued expenses
attributable to the Portfolio and the general expenses of the Fund prorated on
the basis of relative net assets of the Portfolio in relation to the net assets
of the Fund's other portfolios applicable to that period.
From time to time the Portfolios advertise their "yield" and "total
return." These figures are based on historical earnings and are not intended to
indicate future performance.
The "yield" of a Portfolio refers to the income generated by an
investment in the Portfolio over a 30-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 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage of
the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period.
For the 30-day period ended October 31, 1998, the ARM Portfolio's
annualized yield was 5.28%. The average annual total rates of return for the
one-year and five-year periods ended October 31, 1998, and for the period from
September 18, 1991, the date the shares were first publicly offered, were 5.00%,
5.58% and 5.42%, respectively. Without fee waivers, the 30-day annualized yield
would have been 4.98% and the average annual total rates of return for the
one-year and five-year periods and the period since the initial public offering
date would have been 4.70%, 5.28% and 4.99%, respectively.
For the 30-day period ended October 31, 1998, the Intermediate Mortgage
Portfolio's annualized yield was 5.94%. The average annual total rates of return
for the one-year, five-year and ten-year periods ended October 31, 1998, were
7.18%, 5.79% and 7.67%, respectively. Without fee waivers, the 30-day annualized
yield would have been 5.84% and the average annual total rates of return for the
one-year, five-year and ten-year periods would have been 7.08%,
5
<PAGE> 49
5.64% and 7.54%, respectively. The total return figures for the ten-year period
reflects the performance of the Portfolio as the Corporate Bond Portfolio, which
was invested primarily in investment grade corporate bonds prior to June 2,
1992.
For the 30-day period ended October 31, 1998, the U.S. Government
Mortgage Portfolio's annualized yield was 6.02%. The average annual total rates
of return for the one-year, five-year and ten-year periods ended October 31,
1998, were 7.58%, 6.42% and 8.14%, respectively.
For each Portfolio, the annualized yield shown above was computed by
dividing the aggregate net income per share for dividend purposes for the 30-day
period by the Portfolio's net asset value on October 31, 1998. The 30-day yield
was then annualized on a bond-equivalent basis assuming semi-annual reinvestment
and compounding of net income per share for dividend purposes.
The "total return" of a Portfolio shows what an investment in the
Portfolio would have earned over a specified period of time (one, five and ten
years; for the ARM Portfolio, one and five years and any longer period of
time measured from September 18, 1991, the date the Portfolio's shares were
first offered publicly), assuming that all distributions and dividends by the
Portfolio were reinvested on the reinvestment dates during the period and less
all recurring fees. Any agreement by the Adviser and Distributor to reduce or
waive their fees under certain circumstances may cause a Portfolio's yield and
total return to be higher than they otherwise would be.
For each Portfolio, the total return for each period shown above was
computed by assuming a hypothetical initial investment of $1,000 on the first
day of such period. It was then assumed that all dividends and distributions
over the period were reinvested and that, at the end of such period, the entire
amount was redeemed. The average annual total rate of return was then determined
by calculating the annual rate required for the initial payment to grow to the
amount which would have been received upon redemption (i.e., the average annual
compound rate of return).
From time to time, each Portfolio may quote a "dividend distribution
rate" in sales literature. The "dividend distribution rate" represents the
aggregation of actual distributions made, representing dividends, realized
short-term capital gains and certain realized long-term capital gains. It does
not reflect unrealized gains or losses. The "dividend distribution rate" differs
from yield in that certain non-recurring components may be included. Any quoted
"dividend distribution rate," therefore, should be considered along with, and
not as a substitute for, the yield and total rate of return of the Portfolio.
From time to time each Portfolio's performance may be compared with
various indices and investments, other performance measures or rankings, or
other mutual funds, or indices or averages of other mutual funds.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors. The Directors are
responsible for managing the Fund's business affairs and for exercising all the
Fund's powers except those reserved for the stockholders. The Directors'
responsibilities include reviewing the actions of the Fund's investment adviser,
distributor and administrator.
DIRECTORS AND OFFICERS
Directors and Officers of the Fund, together with information as to
their principal business occupations during the past five years, are shown
below. Each director who is an "interested person" of the Fund, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), is indicated by
an asterisk.
6
<PAGE> 50
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
RICHARD M. AMIS (AGE 48) Director
630 Clarksville Street
Paris, TX 75460
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
President, First Federal Savings & Loan Association since 1984;
Director, First Financial Trust Company; formerly Chairman, Texas Savings and
Community Bankers Association.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
ARTHUR G. DE RUSSO (AGE 78) Director
5397 S.E. Major Way
Stuart, FL 34997
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chief Executive Officer, Eastern Financial Federal Credit Union from
1974 to 1992; Chairman and Director, First Credit Union Trust Co., Inc. from
1988 to 1992; President of the Airline Credit Union Conference in 1991;
Director, Honor ATM Network, Florida from 1985 to 1990.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
DAVID F. HOLLAND (AGE 57) Director
17 New England Executive Park
Burlington, MA 01803
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chairman of the Board since 1989 and Chief Executive Officer since 1986
of Boston Federal Savings Bank; Director of Fund from 1988 to 1989 and since
1993; Director of Federal Home Loan Bank of Boston; until December 1997 Chairman
of America's Community Banking Partners, Inc. and Director of ACB Investment
Services, Inc.; Director of M.S.B. Fund, Inc. since 1997; Director and Chairman
since December 1995 of Center for Financial Studies; Director of NYCE
Corporation since 1995; Director from 1990 to 1995 and Chairman 1993-1994 of
America's Community Bankers; member from 1995 to 1997 and President since 1997
of Thrift Institutions Advisory Council.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
GERALD J. LEVY (AGE 67) Vice Chairman of the Board and Director
4000 W. Brown Deer Road
Milwaukee, WI 53209
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chairman and Chief Executive Officer, Guaranty Bank, S.S.B. since 1984
(from 1959 to 1984, he held a series of officer's positions, including
President). Chairman, 1986, United States League of Savings Institutions;
Director of FIserv, Inc. since 1986; Director since 1995 of the Republic
Mortgage Insurance Company; Director of the Federal Asset Disposition
Association from 1986 to 1989; and, previously Director and Vice Chairman,
Federal Home Loan Bank of Chicago and member of Advisory Committee of the
Federal Home Loan Mortgage Corporation and Federal National Mortgage
Corporation.
7
<PAGE> 51
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
RODGER D. SHAY* (AGE 62) Chairman of the Board and Director
1000 Brickell Avenue
Miami, FL 33131
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chairman and Director of Shay Assets Management, Inc. since August
1997 (previously President and Director from 1990 to August 1997); Chairman and
Director of Shay Financial Services, Inc. since August 1997 (previously
President and Director from 1990 to August 1997); President, Chief Executive
Officer and member of the Managing Board of Shay Assets Management Co. from 1990
to December 1997. President, Chief Executive Officer and member of the Managing
Board of Shay Financial Services Co. from 1990 to December 1997; Director from
1986 to 1991 and President from 1986 to 1992, U.S. League Securities, Inc.; Vice
President since 1995 of Institutional Investors Capital Appreciation Fund, Inc.
and M.S.B. Fund, Inc.; Director, First Home Savings Bank, S.L.A. since 1990
previously Director, Asset Management Fund, Inc., from 1985 to 1990; President
of Bolton Shay and Company and Director and officer of its affiliates from 1981
to 1985; Previously, employed by certain subsidiaries of Merrill Lynch & Co.
from 1955 to 1981, where he served in various executive positions including
Chairman of the Board of Merrill Lynch Government Securities, Inc., Chairman of
the Board of Merrill Lynch Money Market Securities, Inc. and Managing Director
of the Debt Trading Division of Merrill Lynch, Pierce, Fenner & Smith Inc.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
EDWARD E. SAMMONS, JR. (AGE 59) President and Treasurer
230 West Monroe Street
Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
President of Shay Assets Management, Inc. since August 1997
(previously Executive Vice President from 1990 to August 1997); Executive Vice
President and member of the Managing Board of Shay Assets Management Co. from
1990 to December 1997. Executive Vice President and member of the Managing
Board of Shay Financial Services Co. from 1990 to December 1997 and Executive
Vice President of the managing partner of the Shay Financial Services, Inc.,
from 1990 to December 1997. Vice President and Secretary since 1995 of
Institutional Investors Capital Appreciation Fund, Inc. and M.S.B. Fund, Inc.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
ROBERT T. PODRAZA (AGE 54) Vice President and Assistant Treasurer
230 West Monroe Street
Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Vice President of Shay Investment Services, Inc. since 1990; Vice
President since 1990 and Chief Compliance Officer since 1997 of Shay Financial
Services, Inc.; Vice President since 1990 and Chief Compliance Officer since
1997 of Shay Assets Management, Inc.; Chief Compliance Officer of Shay Financial
Services Co. and Shay Assets Management Co. from 1989 to 1997; Director of the
National Society of Compliance Professionals since 1996.
8
<PAGE> 52
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
DANIEL K. ELLENWOOD (AGE 29) Secretary
230 West Monroe Street
Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Secretary of the Fund since April 1998; Operations Analyst, Shay Assets
Management, Inc. since November 1997; Compliance Analyst, Shay Financial
Services, Inc. since October 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
DORIS J. PAVEL (AGE 44) Assistant Secretary
230 West Monroe Street
Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Assistant Secretary, Asset Management Fund, Inc. since 1993;
Administrative Manager, Shay Investment Services, Inc., since December 1997;
Administrative Manager, ACB Investment Services Co., 1993 to December 1997, and
previously Administrative Assistant for several affiliated firms since 1987.
The following table sets forth the compensation earned by directors
from the Fund for the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL
COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON TOTAL
DIRECTOR THE FUND PART OF FUND EXPENSES RETIREMENT COMPENSATION
- -------- ----------------- --------------------- ---------------- ------------
<S> <C> <C> <C> <C>
Richard M. Amis $ 14,500 0 0 $ 14,500
Arthur G. DeRusso 13,500 0 0 13,500
David F. Holland 14,500 0 0 14,500
Leon T. Kendall (1) 3,375 0 0 3,375
Gerald J. Levy 13,000 0 0 13,000
Rodger D. Shay 0 0 0 0
</TABLE>
(1) Retired December 6, 1997.
The following table provides certain information at November 30, 1998
with respect to persons known to the Fund to be beneficial (and record) owners
(having sole voting and dispositive power) of 5% or more of the shares of common
stock of the ARM Portfolio, the Intermediate Mortgage Portfolio and the U.S.
Government Mortgage Portfolio:
<TABLE>
<CAPTION>
PERCENT OF PORTFOLIO'S
OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES COMMON STOCK
- ------------------------------------ ---------------- ----------------------
<S> <C> <C>
ARM PORTFOLIO:
- --------------
Teachers Credit Union 5,311,526 5.78%
110 South Main Street
South Bend, IN 46601
INTERMEDIATE MORTGAGE PORTFOLIO:
- --------------------------------
Sovereign Bank 1,468,729 13.96%
P.O. Box 12646
Reading, PA 19612
Fullerton Community Bank 1,208,746 11.49%
200 W. Commonwealth Ave
Fullerton, CA 92632
First Federal Savings & Loan of Martinsville 936,722 8.90%
P.O. Box 684
Martinsville, VA 24114
BFS Security Corp. 825,411 7.85%
17 New England Executive Park
Burlington, MA 01803
Cuero State Bank, S.S.B. 673,696 6.40%
P.O. Box 808
Cuero, TX 77954
Fox Valley Savings and Loan 634,191 6.03%
P.O. Box 1216
51 E. First Street
Fond Du Lac, WI 54935
Guaranty Savings & Homestead 552,595 5.25%
3798 Veterans Memorial Blvd.
Metairie, LA 70002
First Financial Investments 541,817 5.15%
3800 Howard Hughes Parkway
Suite 1570
Las Vegas, NV 89109
</TABLE>
9
<PAGE> 53
<TABLE>
<CAPTION>
PERCENT OF PORTFOLIO'S
OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES COMMON STOCK
- ------------------------------------ ---------------- ----------------------
<S> <C> <C>
U.S. GOVERNMENT MORTGAGE PORTFOLIO:
- ----------------------------------
Skowhegan Savings Bank 1,401,133 17.83%
P.O. Box 250
Skowhegan, ME
First Federal Bank, F.S.B. 1,069,282 13.61%
109 East Depot
P.O. Box 256
Coltchester, IL 62326
First Federal Savings Bank 935,162 11.90%
P.O. Box 6007
Sheridan, WY 82801
BFS Security Corp. 745,839 9.49%
17 New England Executive Park
Burlington, MA 01803
St. Casimirs Savings Bank 561,142 7.14%
2703 Foster Avenue
Baltimore, MA 21224
Mechanics Savings Bank 477,823 6.08%
100 Pearl Street
Hartford, CT 06103
Tri-County Federal Savings Bank 459,994 5.85%
P.O. Box 1057
Torrington, WY 82240
</TABLE>
As of November 30, 1998, none of the directors had, through any
institution for which they serve as officers, voting and investment power over
any shares of the ARM Portfolio, the Intermediate Mortgage Portfolio or the U.S.
Government Mortgage Portfolio.
10
<PAGE> 54
INVESTMENT ADVISER AND ADMINISTRATOR
The investment adviser of the Fund since December 8, 1997 is Shay
Assets Management, Inc. (the "Adviser"), a Florida corporation, with its
principal office at 230 West Monroe Street, Chicago, Illinois 60606. The Adviser
is registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and is a wholly owned subsidiary of Shay Investment Services,
Inc., a closely held corporation controlled by Rodger D. Shay, the President of
the Fund.
Effective December 8, 1997, the Adviser succeeded to the investment
adviser business of Shay Assets Management Co. ("SAMC"), which had been the
Fund's investment adviser since 1990. SAMC was a general partnership that
consisted of two general partners, Shay Assets Management, Inc., the Fund's
current adviser, and ACB Assets Management, Inc. ("ACBAM"), each of which held a
fifty percent interest in the partnership. Shay Assets Management, Inc. is
controlled by Rodger D. Shay and ACBAM is an indirect wholly owned subsidiary of
America's Community Bankers ("ACB"). On December 8, 1997, Shay Assets
Management, Inc. purchased ACBAM's 50% interest in SAMC and the investment
adviser operations were transferred to the Adviser.
The initial term of the Investment Advisory Agreement between the Fund
and the Adviser (the "Advisory Agreement"), was completed as to each Portfolio
on March 1, 1999, and now continues from year to year thereafter, subject to
termination by the Fund or the Adviser as hereinafter provided, if such
continuance is approved at least annually by a majority of the outstanding
shares (as defined under "General Information" in this Statement of Additional
Information) of each Portfolio or by the Fund's Board of Directors. The Advisory
Agreement must also be approved annually by the vote of a majority of the
directors of the Fund who are not parties to the Advisory Agreement or
"interested persons" of any party thereto. All directors' votes must be cast in
person at a meeting called for the purpose of voting on such approval.
As compensation for the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser a fee, payable monthly, with
respect to the ARM Portfolio based on an annual percentage of the average daily
net assets of the Portfolio as follows: 0.45% of the first $3 billion; 0.35% of
the next $2 billion and 0.25% in excess of $5 billion. The Adviser may
voluntarily elect to waive its advisory fees in an amount up to but not to
exceed 0.45% of the average daily net assets of the Portfolio. This voluntary
waiver agreement may be terminated at any time by the Adviser. For the Fund's
fiscal year ended October 31, 1998 (for the period beginning December 8, 1997),
the Adviser was paid fees of $1,904,871 (net of fee waivers of $1,523,896) with
respect to the ARM Portfolio. For the Fund's fiscal years ended October 31, 1998
(through December 7, 1997), 1997 and 1996, the Fund paid SAMC fees with respect
to the ARM Portfolio of $206,507 (net of fee waivers of $165,206), $1,800,992
(net of fee waivers of $1,440,794), and $2,290,307 (net of fee waivers of
$1,832,247), respectively.
As compensation for the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser a fee, payable monthly, with
respect to the Intermediate Mortgage Portfolio, at the rate of 0.35% per annum
of the average daily net assets of the Portfolio up to and including $500
million; 0.275% per annum of the next $500 million of such net assets;
0.20% per annum of the next $500 million of such net assets; and 0.10% per
annum of such net assets over $1.5 billion. The Adviser may voluntarily elect to
waive its fees in an amount up to but not to exceed 0.35% of the average daily
net assets of the Portfolio. This voluntary waiver agreement may be terminated
at any time by the Adviser. For the Fund's fiscal year ended October 31, 1998
(for the period beginning December 8, 1997), the Adviser was paid fees of
$206,032 (net of fee waivers of $82,413) with respect to the Intermediate
Mortgage Portfolio. For the Fund's fiscal years ended October 31, 1998 (through
December 7, 1997), 1997 and 1996, the Fund paid SAMC fees of $20,439 (net of fee
waivers of $8,176), $212,156 (net of fee waivers of $84,863), and $359,317 (net
of fee waivers of $239,669), respectively with respect to the Intermediate
Mortgage Portfolio.
As compensation for the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser a fee, payable monthly, with
respect to the U. S. Government Mortgage Portfolio, at the rate of 0.25% per
annum of the average daily net assets of the Portfolio up to and including $500
million; 0.175% per annum of the next $500 million of such net assets; 0.125%
per annum of the next $500 million of such net assets; and 0.10% per annum of
such net assets over $1.5 billion. For the Fund's fiscal year ended October 31,
1998 (for the period beginning December 8,
11
<PAGE> 55
1997), the Adviser was paid fees of $158,794 with respect to the U.S. Government
Mortgage Portfolio. For the Fund's fiscal years ended October 31, 1998 (through
December 7, 1997), 1997 and 1996, the Fund paid SAMC fees of $13,968, $137,123,
and $146,347, respectively, for the U.S. Government Mortgage Portfolio.
The Adviser may from time to time enter into arrangements with entities
such as trade associations and affinity groups ("organizations") whereby the
Adviser agrees to pay such an organization a portion of the management fees
received by the Adviser with respect to assets invested in the Fund by members
of the organization for certain services or products (such as use of logos or
membership lists, bundling with or placement of articles in newsletters or
other organization publications, directory listings, and space at trade shows)
provided by the organization.
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by any
portfolio of the Fund in connection with the matters to which the Advisory
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the Advisory
Agreement.
The Advisory Agreement will terminate automatically upon its assignment
and is terminable with respect to each Portfolio at any time without penalty by
the Board of Directors of the Fund or by a vote of a majority of the outstanding
shares (as defined under "General Information" in this Statement of Additional
Information) of the Portfolio on 60 days' written notice to the Adviser, or by
the Adviser on 90 days' written notice to the Fund.
The Portfolio Managers of the Adviser responsible for making investment
decisions concerning the Fund's investments are Edward E. Sammons, Jr., Rodger
D. Shay, Richard Blackburn, Rodger D. Shay, Jr., and Gregory J. Wisniewski. For
information as to the principal occupations during the past five years of
Messrs. Sammons and Shay, who are also officers of the Fund, see "Management of
the Fund" in this Statement of Additional Information. The principal business
occupations during the past five years and professional backgrounds of the
Portfolio Managers who are not also officers of the Fund are shown below
following each of their names and business addresses.
RICHARD BLACKBURN
230 West Monroe Street
Chicago, IL 60606
Portfolio Manager of the Adviser and SAMC, the Fund's former adviser,
since 1991. With approximately twenty-five years of experience in the securities
industry, his previous employers also include Harris Trust & Savings Bank,
Merrill Lynch, Pierce, Fenner & Smith Inc. and the First National Bank of
Chicago. Mr. Blackburn's primary expertise is in the mortgage securities
markets, particularly in the area of floating and/or adjustable rate securities.
RODGER D. SHAY, JR.
1000 Brickell Avenue
Miami, FL 33131
Portfolio Manager of the Adviser and SAMC, the Fund's former adviser,
since 1991. President of Shay Financial Services, Inc., since August 1997,
previously Senior Vice President from 1994 to August 1997, and Vice President
from 1991 to 1993. He was previously employed by Merrill Lynch, Pierce, Fenner
and Smith Inc., where he served as a senior trader and manager of collateralized
mortgage obligation trading. Mr. Shay's primary expertise is in the mortgage
securities market, particularly in the area of collateralized mortgage
obligations.
GREGORY J. WISNIEWSKI
230 West Monroe Street
Chicago, IL 60606
Portfolio Manager of the Adviser and SAMC, the Fund's former adviser,
since 1994. From 1990 to 1994, Vice President of Shay Financial Services, Inc.
and of an affiliate, Shay Government Securities, Inc., and from 1985 to 1990, an
account executive of predecessors of these firms. His previous employers also
include The Chicago Corporation, where he served as an account executive and
financial futures trader, and Harris Trust and Savings Bank, where he served
variously as a manager of the portfolios of correspondent banks and as the
manager of the commercial paper portfolio of Harris Bankcorp.
12
<PAGE> 56
The Fund's administrative agent (the "Administrator") with respect to
each Portfolio is PFPC Inc. ("PFPC"), a wholly-owned subsidiary of PNC Bank
Corp. Pursuant to the terms of the Restated Administration Agreement (the
"Administration Agreement") dated as of March 1, 1991, as amended, between the
Fund and the Administrator, the Administrator performs various administrative
services for the Fund, including (i) assisting in supervising all aspects of the
Portfolios' operations other than those assumed by the Adviser, the Distributor,
the Portfolios' custodian or transfer and dividend agent, (ii) providing each
Portfolio with the services of persons competent to perform such administrative
and clerical functions as are necessary in order to provide effective
administration of the Portfolios, (iii) maintenance of each Portfolio's books
and records, (iv) preparation of various filings, reports, statements and
returns filed with governmental authorities or distributed to stockholders of
each Portfolio, (v) computation of each Portfolio's net asset value for purposes
of the sale and redemption of its shares, and (vi) computation of each
Portfolio's daily dividend. Certain functions relating to state "blue sky"
qualification services in any of the states where the Portfolios are registered
are subject to additional charges by the Administrator that are not included in
the fee rates and minimum annual fee described below.
As compensation for the services rendered by the Administrator under
the Administration Agreement, the Fund pays the Administrator a fee, computed
daily and payable monthly, with respect to each Portfolio at the rate of 0.03%
per annum of the Portfolio's net assets up to and including $1 billion; 0.02%
per annum of the next $1 billion of net assets; and 0.01% per annum of each
Portfolio's net assets over $2 billion, with a minimum annual fee of $393,200
for all the Fund's five portfolios taken together. If applicable, the minimum
fee is allocated among the Fund's five portfolios based on relative average net
assets. For the fiscal years ended October 31, 1998, 1997 and 1996, the Fund
paid the Administrator fees pursuant to the Administration Agreement with
respect to each Portfolio as follows: for the ARM Portfolio, the fees paid were
$293,520, $269,671, and $276,718, respectively. For the Intermediate Mortgage
Portfolio, the fees were $31,313, $31,793, and $51,659, respectively. For the
U.S. Government Mortgage Portfolio, the fees were $24,145, $21,188, and $18,168,
respectively.
The Fund is responsible for the payment of its expenses. Such expenses
include, without limitation, the fees payable to the Adviser, the Administrator
and the Distributor (see "Distributor" below) with respect to each Portfolio,
the fees and expenses of the Fund's custodian and transfer and dividend agent
with respect to each Portfolio, any brokerage fees and commissions of each
Portfolio, any portfolio losses of each Portfolio, filing fees for the
registration or qualification of each Portfolio's shares under federal or state
securities laws, the Portfolio's pro rata share of taxes, interest, costs of
liability insurance, fidelity bonds or indemnification, any costs, expenses or
losses arising out of any liability of, or claim for damages or other relief
asserted against, the Fund with respect to the Portfolio for violation of any
law, each Portfolio's pro rata share of legal and auditing fees and expenses,
expenses of preparing and setting in type prospectuses, proxy material, reports
and notices and the printing and distributing of the same to the Portfolio's
stockholders and regulatory authorities, the Portfolio's pro rata share of
compensation and expenses of the Fund's directors and officers who are not
affiliated with the Adviser, the Administrator, the Distributor or the transfer
and dividend agent, and extraordinary expenses incurred by the Fund with respect
to each Portfolio.
DISTRIBUTOR
Shay Financial Services, Inc. is a registered broker-dealer and the
Fund's principal distributor (the "Distributor"). The Distributor, a Florida
corporation, is a wholly owned subsidiary of Shay Investment Services, Inc.,
which is a closely held corporation controlled by Rodger D. Shay.
From September 18, 1996 until December 8, 1997, Shay Financial Services
Co. ("SFSC") had been the Fund's principal distributor. Prior to September 18,
1996, SFSC had acted as the Fund's sponsor of its shares. SFSC was a general
partnership that consisted of two general partners, Shay Financial Services,
Inc., the Fund's current distributor, and ACB Securities, Inc. ("ACBS"), each of
which held a fifty percent interest in the partnership. Shay Financial
Services, Inc. is controlled by Rodger D. Shay and ACBS is an indirect
wholly-owned subsidiary of ACB. On December 8, 1997, Shay Financial Services,
Inc. purchased ACBS' 50% interest in SFSC and the broker-dealer operations and
distribution activities were transferred to the Distributor.
13
<PAGE> 57
As compensation for distribution services, the Fund pays the
Distributor a fee, payable monthly, with respect to the ARM Portfolio at the
rate of 0.25% per annum of the average daily net assets of the Portfolio. The
Distributor may voluntarily elect to waive its 12b-1 fees in an amount up to but
not to exceed 0.25% of the average daily net assets of the Portfolio. This
voluntary waiver agreement may be terminated at any time by the Distributor. For
the fiscal year ended October 31, 1998 (for the period beginning December 8,
1997), the Distributor was paid fees of $1,142,923 (net of fee waivers of
$761,948) for the ARM Portfolio. For the fiscal years ended October 31, 1998
(through December 7, 1997), 1997 and 1996, the Fund paid SFSC $123,904 (net of
fee waivers of $82,603), $1,080,595 (net of fee waivers of $720,397), and
$1,374,184 (net of fee waivers of $916,124), respectively, for the ARM
Portfolio.
As compensation for distribution services, the Fund pays the
Distributor a fee, payable monthly, with respect to each of the Intermediate
Mortgage Portfolio and the U.S. Government Mortgage Portfolio at the rate of
0.15% per annum of the average daily net assets of the Portfolio up to and
including $500 million; 0.125% per annum of the next $500 million of such net
assets; 0.10% per annum of the next $500 million of such net assets; and 0.075%
per annum of such net assets over $1.5 billion. For the fiscal year ended
October 31, 1998 (for the period beginning December 8, 1997), the Distributor
was paid fees of $123,619 for the Intermediate Mortgage Portfolio. For the
fiscal years ended October 31, 1998 (through December 7, 1997), 1997 and 1996,
the Fund paid SFSC fees pursuant to the Rule 12b-1 Agreement, as in effect, of
$12,264, $127,294, and $256,708, respectively, for the Intermediate Mortgage
Portfolio. For the fiscal year ended October 31, 1998 (for the period beginning
December 8, 1997), the Distributor was paid fees of $95,277 for the U.S.
Government Mortgage Portfolio. For the fiscal years ended October 31, 1998
(through December 7, 1997), 1997 and 1996, the Fund paid the Distributor fees
pursuant to the Rule 12b-1 Agreement, as in effect, of $8,380, $82,274, and
$87,808, respectively, for the U.S. Government Mortgage Portfolio.
The Distributor is obligated under the Distribution Agreement to bear
the costs and expenses of printing and distributing copies of prospectuses and
annual and interim reports of the Fund (after such items have been prepared and
set in type) that are used in connection with the offering of shares of the Fund
to investors, and the cost and expenses of preparing, printing and distributing
any other literature used by the Distributor in connection with the offering of
the shares of the Portfolio for sale to investors.
The Fund has been informed by the Distributor that during its fiscal
year ended October 31, 1998, of the $1,266,827 fee received in the aggregate by
SFSC and the Distributor from the Fund with respect to the ARM Portfolio, the
following expenditures were made:
<TABLE>
<S> <C>
Advertising $ 58,158
Printing 43,965
Employee compensation and costs 1,715,617
Staff travel and expense 127,405
Other administrative expense 242,867
-------
Total $2,188,012
==========
</TABLE>
The Fund has been informed by the Distributor that during its fiscal
year ended October 31, 1998, of the $135,883 fee received in the aggregate by
SFSC and the Distributor from the Fund with respect to the Intermediate Mortgage
Portfolio, the following expenditures were made:
<TABLE>
<S> <C>
Advertising $ 6,239
Printing 4,716
Employee compensation and costs 184,043
Staff travel and expense 13,667
Other administrative expense 26,053
------
Total $234,718
========
</TABLE>
14
<PAGE> 58
The Fund has been informed by the Distributor that during its fiscal
year ended October 31, 1998, of the $103,657 fee received in the aggregate by
SFSC and the Distributor from the Fund with respect to the U.S. Government
Mortgage Portfolio, the following expenditures were made:
<TABLE>
<S> <C>
Advertising $ 4,762
Printing 3,600
Employee compensation and costs 140,471
Staff travel and expense 10,432
Other administrative expense 19,886
------
Total $179,151
========
</TABLE>
Shay Financial Services, Inc., the Fund's Distributor, and its
affiliated persons, including Rodger D. Shay, who is a Director and the Chairman
of the Board of the Fund, Edward E. Sammons Jr., who is President and Treasurer
of the Fund, Robert T. Podraza, who is Vice President and Assistant Treasurer of
the Fund, and Daniel K. Ellenwood, who is the Secretary of the Fund, have a
direct or indirect financial interest in the operation of the Fund's Rule 12b-1
Plan and related Distribution Agreement. None of the Directors who are not
interested persons of the Fund have any direct or indirect financial interest in
the operation of the Fund's Rule 12b-1 and related Distribution Agreement Plan.
As discussed in the Fund's prospectus under the heading "Distributor",
the Fund has appointed the Distributor to act as the principal distributor of
the Fund's shares pursuant to a Distribution Agreement dated December 8, 1997
between the Fund and the Distributor (the "Distribution Agreement"). The initial
term of the Distribution Agreement with the Distributor was completed as of
March 1, 1999, and now continues in effect from year to year thereafter, subject
to termination by the Fund or the Distributor as hereinafter provided, if
approved at least annually by the Fund's Board of Directors and by a majority of
the directors who are not "interested persons" of the Fund and have no direct or
indirect financial interest in the arrangements contemplated by the agreement.
The Fund's Rule 12b-1 Plan requires the Fund's Board of Directors to make a
quarterly review of the amount expended under the Rule 12b-1 Plan and the
purposes for which such expenditures were made. The Rule 12b-1 Plan may not be
amended to increase materially the amount paid by the Fund thereunder without
stockholder approval. All material amendments to the Rule 12b-1 Plan must be
approved by the Fund's Board of Directors and by the "disinterested" directors
referred to above. The Rule 12b-1 Plan will terminate automatically upon its
assignment and is terminable at any time without penalty by a majority of the
Fund's directors who are "disinterested" as described above or by a vote of a
majority of the outstanding shares (as defined under "General Information" in
this Statement of Additional Information) of each Portfolio on 60 days' written
notice to the Distributor, or by the Distributor on 90 days' written notice to
the Fund. Although the Distributor's fee is calculable separately with respect
to each Portfolio of the Fund and the Distributor reports expense information to
the Fund on a portfolio-by-portfolio basis, any 12b-1 fee received by the
Distributor in excess of expenses for a given Portfolio may be used for any
purpose, including payment of otherwise unreimbursed expenses incurred in
distributing shares of another Portfolio or to compensate another dealer for
distribution assistance. The 12b-1 Plan does not permit a Portfolio to be
charged for interest, carrying, or other financing charges on any such
unreimbursed carryover amounts, but it does provide for reimbursement for a
portion of the Distributor's overhead expenses.
ADMINISTRATOR AND TRANSFER AND DIVIDEND AGENT
PFPC Inc. ("PFPC"), 103 Bellevue Parkway, Wilmington, Delaware 19809,
performs various administrative services for the Fund with respect to the
Portfolios. These services include maintenance of books and records, preparation
of governmental filings and stockholder reports, and computation of net asset
values and daily dividends. For the Fund's fiscal year ended October 31, 1998,
the Fund paid PFPC a fee of 0.03% of each Portfolio's average net assets for the
above administrative services. PFPC is also the transfer and dividend agent for
each Portfolio's shares.
15
<PAGE> 59
CUSTODIAN
PFPC Trust Company, Philadelphia, Pennsylvania, is the custodian of
each Portfolio's investments. PFPC Trust Company and PFPC are affiliates of PNC
Bank Corp.
DETERMINATION OF NET ASSET VALUE
For purposes of determining the net asset value per share of each
Portfolio, investments for which market quotations are readily available will be
valued at the mean between the most recent bid and asked prices, which may be
furnished by a pricing service, at prices provided directly by market makers, or
using matrix pricing methods. Portfolio securities for which market quotations
are not readily available, and other assets, will be valued at fair value using
methods determined in good faith by the Board of Directors. Short-term
instruments maturing within 60 days of the valuation date may be valued based
upon their amortized cost. The Board of Directors will review valuation methods
regularly in order to determine their appropriateness.
TAXES
Each of the Fund's portfolios, including these Portfolios, is treated
as a separate corporation for Federal income tax purposes, and thus the
provisions of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to regulated investment companies are applied to each
portfolio separately, rather than to the Fund as a whole. In addition, net
long-term and short-term capital gains and losses, net investment income, and
operating expenses are determined separately for each portfolio.
Each Portfolio qualifies as a regulated investment company under
Subchapter M of the Code. In order to so qualify each Portfolio must, among
other things: (a) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of its total assets is represented by
cash, Government securities and other securities with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Portfolio's assets or 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than Government securities)
and (b) derive at least 90% of its gross income from dividends, interest,
proceeds from loans of stock and securities, gains from the sale or other
disposition of stock or securities, and other income derived with respect to its
business of investing in stock or securities. If each Portfolio qualifies as a
regulated investment company, it will not be subject to Federal income tax on
its income and gains distributed to shareholders, provided at least 90% of its
investment company taxable income earned in the taxable year (computed without
regard to the deduction for dividends paid) is so distributed.
Dividends of each Portfolio's net investment income (which generally
includes income other than capital gains, net of operating expenses), and
distributions of net short-term capital gains (i.e., the excess of net
short-term capital gains over net long-term capital losses) are taxable to
stockholders as ordinary income whether reinvested in shares or paid in cash.
Distributions of net long-term capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) are taxable to stockholders as
long-term capital gains, regardless of how long shares of the Portfolio have
been held, whether reinvested in shares or paid in cash. Under the Code, net
long-term capital gains received by corporate stockholders (including long-term
capital gain distributions by each Portfolio) are taxed at the same rates as
ordinary income. Net long-term capital gains received by individual stockholders
(including long-term capital gain distributions by each Portfolio) are generally
taxed at a maximum rate of 20%.
Because none of each Portfolio's income will consist of dividends from
domestic corporations, dividends of net investment income as well as
distributions of net long-term and short-term capital gains will not qualify for
the dividends received deduction available to corporate shareholders.
Gain or loss realized upon a sale or redemption of shares of each
Portfolio by a stockholder who is not a dealer in securities will be treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss. Any loss realized
by a stockholder upon the sale of shares in each Portfolio
16
<PAGE> 60
held six months or less will be treated as a long-term capital loss, however, to
the extent of any long-term capital gain distributions received by the
stockholder with respect to such shares.
Any capital gains distribution received shortly after the purchase of
shares reduces the net asset value of the shares by the amount of the
distribution and, although in effect a return of capital, will be taxable to the
stockholder. If the net asset value of shares were reduced below the
stockholder's cost by distributions representing gains realized on sales of
securities, such distributions would be a return of investment though taxable in
the same manner as other dividends or distributions.
Each Portfolio generally will be subject to a 4% nondeductible excise
tax to the extent the Portfolio does not meet certain minimum distribution
requirements by the end of each calendar year. To avoid the imposition of the 4%
excise tax, it may be necessary for a dividend to be declared in December and
actually paid in January of the following year, which will be treated as having
been received by stockholders on December 31 of the calendar year in which
declared. Under this rule, therefore, a stockholder may be taxed in one year on
dividends or distributions actually received in January of the following year.
Dividends and distributions may be subject to state and local taxes.
The foregoing discussion is not intended to be a full discussion of
income tax laws and their effect on shareholders. Investors should consult their
own tax advisors as to the tax consequences of ownership of shares.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities for each Portfolio usually are
principal transactions. Portfolio securities normally are purchased directly
from the issuer or from an underwriter or market maker for the securities. There
usually, but not always, are no brokerage commissions paid by the Fund for such
purchases, and during the fiscal year ended October 31, 1998, none of the
Portfolios paid any brokerage commissions. Purchases from dealers serving as
market makers may include the spread between the bid and asked prices. The
Adviser attempts to obtain the best price and execution for portfolio
transactions.
Each Portfolio will not purchase securities from, sell securities to,
or enter into repurchase agreements with, the Adviser or any of its affiliates.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment under the general
supervision of the Board of Directors of the Fund and in a manner deemed fair
and reasonable to stockholders. The primary consideration is prompt execution of
orders in an effective manner at the best price. On occasion the Adviser on
behalf of each Portfolio may effect securities transactions on an agency basis
with broker-dealers providing research services and/or research-related products
for the Fund. Research services or research-related products may include
information in the form of written reports, reports accessed by computers or
terminals, statistical collations and appraisals and analysis relating to
companies or industries. However, in selecting such broker-dealers, the Adviser
adheres to the primary consideration of best price and execution.
Investment decisions for each portfolio of the Fund are made
independently from those for the other portfolios or other clients advised by
the Adviser. It may happen, on occasion, that the same security is held in one
portfolio of the Fund and the other portfolios of one or more of such other
clients. Simultaneous transactions are likely when several portfolios and
clients are advised by the same investment adviser, particularly when a security
is suitable for the investment objectives of more than one of such portfolios or
clients. When two or more portfolios or other clients advised by the Adviser are
simultaneously engaged in the purchase or sale of the same security, the
transactions are allocated to the respective portfolios or clients, both as to
amount and price, in accordance with a method deemed equitable to each portfolio
or client. In some cases this system may adversely affect the price paid or
received by a portfolio of the Fund or the size of the security position
obtainable for such portfolio.
17
<PAGE> 61
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for the ARM
Portfolio, none of which may be changed without the approval of a majority of
the outstanding shares of the Portfolio, as defined under "General Information"
in this Statement of Additional Information. Accordingly, the ARM Portfolio may
not:
(1) Purchase securities other than those qualifying under OTS
Regulations. In the event that the OTS Regulations (as defined in the
Prospectus) applicable to Federal savings associations are amended to
remove assets from the list of assets which qualify as permissible
investments, the Fund will dispose of any nonqualifying assets held by
the Portfolio in such time and manner as may be permitted by relevant
OTS Regulations or, if none, in such time and manner as the Fund's
Board of Directors may determine. Conversely, if the list of qualifying
assets is expanded, the Portfolio will be free to make investments
therein, to the extent consistent with the Fund's investment objective
and the Portfolio's management policies.
(2) Invest more than 5% of its total assets in the securities of any
one issuer, other than securities issued or guaranteed by the United
States Government or its agencies or Instrumentalities, except that up
to 25% of the value of the Portfolio's total assets may be invested
without regard to this 5% limitation.
(3) Enter into repurchase agreements or purchase any other investments
for which market quotations are not readily available, in each case
maturing in more than 7 days, or Interest Rate Caps and Floors if, as a
result, more than 10% of the value of the Portfolio's total assets
would be invested in such repurchase agreements and such other illiquid
investments.
(4) Borrow money except from banks (a) for temporary or emergency
purposes and in an amount not exceeding 10% of the value of the
Portfolio's net assets, or (b) to meet redemption requests without
immediately selling any portfolio securities and in an amount not
exceeding in the aggregate one-third of the value of the Portfolio's
total assets, less liabilities other than borrowing; or mortgage,
pledge or hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 20% of the value of its net
assets. The borrowing provision of (b) above is not for investment
leverage, but solely to facilitate management of the Portfolio by
enabling the Portfolio to meet redemption requests when the liquidation
of portfolio securities is considered to be disadvantageous. The
Portfolio's net income will be reduced if the interest expense of
borrowings incurred to meet redemption requests and avoid liquidation
of portfolio securities exceeds the interest income of those
securities. To the extent that borrowings exceed 5% of the value of the
Portfolio's net assets, such borrowings will be repaid before any
investments are made.
(5) Invest more than 25% of the value of the Portfolio's total assets
in the securities of issuers in any single industry; provided that
there shall be no such limitation on investments in the mortgage and
mortgage finance industry (in which more than 25% of the value of the
Portfolio's total assets will, except for temporary defensive purposes,
be invested) or on the purchase of obligations issues or guaranteed by
the United States Government or its agencies or instrumentalities.
(6) Act as an underwriter of securities, except to the extent that the
Fund may be deemed to be an "underwriter" in connection with the
purchase of securities for the Portfolio directly from an issuer or an
underwriter thereof.
(7) Make loans except that the Portfolio may purchase or hold debt
obligations, enter into repurchase agreements and loan Federal funds
and other day(s) funds to FDIC Insured Institutions (as defined in the
Prospectus), in each case to the extent permitted by the Fund's
investment objective and the Portfolio's management policies.
(8) Purchase securities on margin or make short sales of securities;
write or purchase put or call options or combinations thereof or
purchase or sell real estate, real estate mortgage loans (except that
the Portfolio may purchase and sell Mortgage Related Securities), real
estate investment trust securities, commodities or commodity contracts,
or oil and gas interests.
18
<PAGE> 62
The Fund has adopted the following investment restrictions for the
Intermediate Mortgage Portfolio and U.S. Government Mortgage Portfolio,
respectively, none of which may be changed without the approval of a majority of
the outstanding shares of the Portfolio, as defined under "General Information"
in this Statement of Additional Information. The restrictions are the same for
both Portfolios except as indicated. Accordingly, the Intermediate Mortgage
Portfolio and the U.S. Government Mortgage Portfolio may not:
(1) Purchase securities other than those qualifying under OTS
Regulations. In the event that the OTS Regulations (as defined in the
Prospectus) applicable to Federal savings associations are amended to
remove assets from the list of assets which qualify as permissible
investments, the Fund will dispose of any nonqualifying assets held by
the Portfolio in such time and manner as may be permitted by relevant
OTS Regulations or, if none, in such time and manner as the Fund's
Board of Directors may determine. Conversely, if the list of qualifying
assets is expanded, the Portfolio will be free to make investments
therein, to the extent consistent with the Fund's investment objective
and the Portfolio's management policies.
(2) Invest more than 5% of its total assets in the securities of any
one issuer, other than securities issued or guaranteed by the United
States Government or its agencies or instrumentalities, except that up
to 25% of the value of the Portfolio's total assets may be invested
without regard to this 5% limitation.
(3) Enter into repurchase agreements or purchase any other investments
for which market quotations are not readily available, in each case
maturing in more than 7 days if, as a result, more than 15% of the
value of the Intermediate Mortgage Portfolio's total assets and more
than 10% of the value of the U.S. Government Mortgage Portfolio's total
assets would be invested in such repurchase agreements and such other
illiquid investments.
(4) Enter into reverse repurchase agreements exceeding in the aggregate
one-third of the value of the U.S. Government Mortgage Portfolio's
total assets, less liabilities other than the obligations created by
reverse repurchase agreements.
(5) (Intermediate Mortgage Portfolio) Borrow money except from banks
(a) for temporary purposes and in an amount not exceeding 10% of the
value of the Portfolio's net assets, or (b) to meet redemption requests
without immediately selling any portfolio securities and in an amount
not exceeding in the aggregate one-third of the value of the
Portfolio's total assets, less liabilities other than such borrowing;
or mortgage, pledge or hypothecate its assets except in connection with
any such borrowing and in amounts not in excess of 20% of the value of
its net assets provided that there shall be no such limitation on
deposits made in connection with the entering into and holding of
interest rate futures contracts and options thereon. The borrowing
provision of (b) above is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to
meet redemption requests when the liquidation of portfolio securities
is considered to be disadvantageous. To the extent that borrowings
exceed 5% of the value of the Portfolio's net assets, such borrowings
will be repaid before any investments are made. The Portfolio's ability
to enter into reverse repurchase agreements is not restricted by this
paragraph (5) and collateral arrangements with respect to margins for
interest rate futures contracts and options thereon are not deemed to
be a pledge of assets for the purpose of this paragraph (5).
(6) (U.S. Government Mortgage Portfolio) Borrow money except from banks
(a) for temporary or emergency purposes and in an amount not exceeding
10% of the value of the Portfolio's net assets, or (b) to meet
redemption requests without immediately selling any portfolio
securities and in an amount not exceeding in the aggregate one-third of
the value of the Portfolio's total assets, less liabilities other than
borrowing; or mortgage, pledge or hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 20%
of the value of its net assets provided that there shall be no such
limitation on deposits made in connection with the entering into and
holding of interest rate futures contracts and options thereon. The
borrowing provision of (b) above is not for investment leverage, but
solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests when the liquidation of portfolio
securities is considered to be disadvantageous. The Portfolio's net
income will be reduced if the interest expense of borrowings incurred
to meet redemption requests and avoid liquidation of portfolio
securities exceeds the interest income of those securities. To the
extent that borrowings exceed 5% of the value of the Portfolio's net
assets, such borrowings will be repaid before any investments are made.
The Portfolio's ability to enter into reverse
19
<PAGE> 63
repurchase agreements is not restricted by this paragraph (6) and
collateral arrangements with respect to margins for interest rate
futures contracts and options thereon are not deemed to be a pledge of
assets for the purpose of this paragraph (6).
(7) Invest more than 25% of the value of the Portfolio's total assets
in the securities of issuers in any single industry; provided that
there shall be no such limitation on investments in the mortgage and
mortgage finance industry (in which more than 25% of the value of the
portfolio's total assets will, except for temporary defensive purposes,
be invested) or on the purchase of obligations issued or guaranteed by
the United States Government or its agencies or instrumentalities.
(8) Act as an underwriter of securities, except to the extent that the
Fund may be deemed to be an "underwriter" in connection with the
purchase of securities for the Portfolio directly from an issuer or an
underwriter thereof.
(9) Make loans except that the Portfolio may purchase or hold debt
obligations, enter into repurchase agreements and loan Federal funds
and other day(s) funds to FDIC Insured Institutions (as defined in the
Prospectus), in each case to the extent permitted by the Fund's
investment objective and the Portfolio's management policies.
(10) (Intermediate Mortgage Portfolio) Purchase securities on margin or
make short sales of securities; write or purchase put or call options
or combinations thereof except that the Portfolio may write covered
call options and purchase call or put options on investments eligible
for purchase by the Portfolio; or purchase or sell real estate, real
estate mortgage loans (except that the Portfolio may purchase and sell
Mortgage-Related Securities), real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests; except
that the Portfolio may enter into interest rate futures contracts and
may write call options and purchase call and put options on interest
rate futures contracts if (a) as to interest rate futures contracts,
each futures contract is (i) for the sale of a financial instrument (a
"short position") to hedge the value of securities held by the
Portfolio or (ii) for the purchase of a financial instrument of the
same type and for the same delivery month as the financial instrument
underlying a short position held by the Portfolio (a "long position
offsetting a short position"), (b) the sum of the aggregate futures
market prices of financial instruments required to be delivered under
open futures contract sales and the aggregate purchase prices under
open futures contract purchases does not exceed 30% of the value of the
Portfolio's total assets, and (c) immediately thereafter, no more than
5% of the Portfolio's total assets would be committed to margin. This
ability to invest interest rate futures contracts and options thereon
is not for speculation, but solely to permit hedging against
anticipated interest rate changes.
(11) (U.S. Government Mortgage Portfolio) Purchase securities on margin
or make short sales of securities; write or purchase put or call
options or combinations thereof except that the Portfolio may write
covered call options and purchase call or put options on securities in
which the Portfolio may invest; or purchase or sell real estate, real
estate mortgage loans (except that the Portfolio may purchase and sell
Mortgage-Related Securities), real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests except
that the Portfolio may enter into interest rate futures contracts and
may write call options and purchase call and put options on interest
rate futures contracts if (a) as to interest rate futures contracts,
each futures contract is (i) for the sale of a financial instrument (a
"short position") to hedge the value of securities held by the
Portfolio or (ii) for the purchase of a financial instrument of the
same type and for the same delivery month as the financial instrument
underlying a short position held by the Portfolio (a "long position
offsetting a short position"), (b) the sum of the aggregate futures
market prices of financial instruments required to be delivered under
open futures contract sales and the aggregate purchase prices under
open futures contract purchases does not exceed 30% of the value of the
Portfolio's total assets, and (c) immediately thereafter, no more than
5% of the Portfolio's total assets would be committed to margin. This
ability to invest in interest rate futures contracts and options
thereon is not for speculation, but solely to permit hedging against
anticipated interest rate changes.
20
<PAGE> 64
ORGANIZATION AND DESCRIPTION OF FUND SHARES
The authorized capital stock of the Fund consists of five classes of
common stock, par value $.001 per share, as follows: (i) Money Market Portfolio
- -- 4.0 billion shares, (ii) Short U.S. Government Securities Portfolio -- 500
million shares, (iii) U.S. Government Mortgage Securities Portfolio -- 500
million shares, (iv) Intermediate Mortgage Securities Portfolio -- 500 million
shares and (v) Adjustable Rate Mortgage (ARM) Portfolio -- 500 million shares.
The shares of each class represent interests only in the corresponding
portfolio. When issued and paid for in accordance with the terms of offering,
each share is fully paid and nonassessable. All shares of common stock of the
same class have equal dividend, distribution, liquidation and voting rights and
are redeemable at net asset value, at the option of the stockholder. In
addition, the shares have no preemptive, subscription or conversion rights and
are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted by the provisions of such Act or applicable state law, or otherwise,
to the holders of the outstanding voting securities of an investment company
such as the Fund shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares (as defined
under "General Information" below) of each class affected by such matter. Rule
18f-2 further provides that a class shall be deemed to be affected by a matter
unless it is clear that the interests of each class in the matter are identical
or that the matter does not affect any interest of such class. However, the Rule
exempts the selection of independent public accountants and the election of
directors from the separate voting requirements of the Rule.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Vedder, Price, Kaufman & Kammholz are legal counsel to the Fund and
pass upon the validity of the shares offered by the Prospectus.
PricewaterhouseCoopers LLP are the Fund's independent accountants. The
financial statements of each Portfolio incorporated in this Statement of
Additional Information by reference to the Fund's Annual Report to Stockholders
for the year ended October 31, 1998 (see "Financial Statements" below), have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP
given on the authority of such firm as experts in accounting and auditing.
GENERAL INFORMATION
The Fund sends to all of the stockholders of each Portfolio semi-annual
reports and annual reports, including a list of investment securities held by
each Portfolio, and, for annual reports, audited financial statements of each
Portfolio.
As used in each Prospectus and this Statement of Additional
Information, the term "majority," when referring to the approvals to be obtained
from stockholders, means the vote of the lesser of (1) 67% of the Fund's shares
of each class or of the class entitled to a separate vote present at a meeting
if the holders of more than 50% of the outstanding shares of all classes or of
the class entitled to a separate vote are present in person or by proxy, or (2)
more than 50% of the Fund's outstanding shares of all classes or of the class
entitled to a separate vote. The Bylaws of the Fund provide that an annual
meeting of stockholders is not required to be held in any year in which none of
the following is required to be acted on by stockholders pursuant to the 1940
Act: election of directors; approval of the investment advisory agreement;
ratification of the selection of independent public accountants; and approval of
a distribution agreement.
The Prospectus and this Statement of Additional Information do not
contain all the information included in the Registration Statement filed with
the Securities and Exchange Commission under the Securities Act of 1933 with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Registration Statement, including the exhibits filed therewith,
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
21
<PAGE> 65
Statements contained in each Prospectus and this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and Statement of Additional
Information form a part, each such statement being qualified in all respects by
such reference.
DESCRIPTION OF DEBT RATINGS
Bonds rated Aa by Moody's are judged to be of high quality by all
standards. Together with the Aaa Group they comprise what are known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa bonds. Moody's applies the numerical
modifiers 1, 2 and 3 to certain general rating classifications, including Aa.
The modifier 3 indicates that the issue ranks in the lower end of its generic
rating category. Debt rated AA by Standard & Poor's has a very strong capacity
to pay interest and repay principal and differs from the highest rated issues,
which are rated AAA, only in small degree. Ratings in certain categories,
including AA, may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories. Duff and Phelps, Inc. and
Fitch Investors Service, Inc. have comparable rating systems.
FINANCIAL STATEMENTS
The financial statements required to be included in this Statement of
Additional Information are incorporated herein by reference to the Fund's Annual
Report to Stockholders for the year ended October 31, 1998 (the "Annual
Report"). The Fund will provide the Annual Report without charge to each person
to whom this Statement of Additional Information is delivered.
22
<PAGE> 66
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
MONEY MARKET PORTFOLIO
AND
SHORT U.S. GOVERNMENT SECURITIES PORTFOLIO
ASSET MANAGEMENT FUND, INC.
230 WEST MONROE STREET, CHICAGO, ILLINOIS 60606
The Money Market Portfolio and the Short U.S. Government Securities
Portfolio (each, a "Portfolio" and collectively, the "Portfolios") are each a
portfolio of Asset Management Fund, Inc. (the "Fund"), a professionally managed,
diversified, open-end investment company. Each Portfolio is represented by a
class of shares separate from those of the Fund's other portfolios.
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Fund's Prospectus, dated March 1, 1999 (the
"Prospectus"), a copy of which may be obtained from the Fund at the address
noted above.
The financial statements pertaining to these portfolios which appear in
the Fund's 1998 Annual Report to Shareholders are incorporated herein by
reference.
<PAGE> 67
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
FUND HISTORY..................................................................................1
THE FUND'S OBJECTIVE, THE PORTFOLIOS AND THEIR INVESTMENT POLICIES............................1
PORTFOLIO TURNOVER............................................................................2
PURCHASE AND REDEMPTION OF SHARES.............................................................2
DIVIDENDS, DISTRIBUTIONS, YIELD AND TOTAL RETURN QUOTATIONS...................................3
MANAGEMENT OF THE FUND........................................................................5
INVESTMENT ADVISER AND ADMINISTRATOR..........................................................8
DISTRIBUTOR..................................................................................11
ADMINISTRATOR AND TRANSFER AND DIVIDEND AGENT................................................12
CUSTODIAN....................................................................................12
DETERMINATION OF NET ASSET VALUE.............................................................13
TAXES........................................................................................14
PORTFOLIO TRANSACTIONS.......................................................................15
INVESTMENT RESTRICTIONS......................................................................15
ORGANIZATION AND DESCRIPTION OF FUND SHARES..................................................16
COUNSEL AND INDEPENDENT ACCOUNTANTS..........................................................17
GENERAL INFORMATION..........................................................................17
FINANCIAL STATEMENTS.........................................................................17
</TABLE>
<PAGE> 68
Capitalized terms not defined in this Statement of Additional
Information and defined in the Prospectus shall have the meanings defined in the
Prospectus.
FUND HISTORY
The Fund is a Maryland corporation which commenced operations as an
open-end management investment company on November 9, 1982. In September 1994,
the Fund changed its name from Asset Management Fund for Financial Institutions,
Inc. to Asset Management Fund, Inc.
THE FUND'S OBJECTIVE, THE PORTFOLIOS
AND THEIR INVESTMENT POLICIES
Under current OTS Regulations and the policies adopted by the Board of
Directors of the Fund, permissible investments for each Portfolio include those
described in the Prospectus, together with the following, as long as principal
and interest on such investments are not in default:
Time deposits (negotiable and non-negotiable) in a Federal Home Loan
Bank, the Bank for Savings and Loan Associations, Chicago, Illinois or the
Savings Banks Trust Company, New York, New York.
Repurchase Agreements. If the seller defaults in its obligation to
repurchase from either Portfolio the underlying instrument, which in effect
constitutes collateral for the seller's obligation, at the price and time fixed
in the repurchase agreement, the Portfolio might incur a loss if the value of
the collateral declines and might incur disposition costs in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller, realization upon the collateral by the Portfolio may
be delayed or limited. Each Portfolio will always receive as collateral
instruments whose market value, including accrued interest, will be at least
equal to 100% of the dollar amount invested by the Portfolio in each agreement.
Each Portfolio enters into repurchase agreements with primary government
securities dealers.
Certificates of Deposit. Each Portfolio may invest in certificates of
deposit issued by and other time deposits in foreign branches of FDIC insured
banks. Investment in such deposits may involve somewhat different investment
risks from those affecting deposits in United States branches of such banks.
These risks, which might adversely affect the payment of principal and interest
on such deposits, include the possibility that a foreign jurisdiction might
impose withholding taxes on interest income payable on such deposits, the
possible seizure or nationalization of foreign deposits or the possible adoption
of foreign governmental restrictions, such as exchange controls.
FDIC Insured Institutions. Although each Portfolio's investment in
savings accounts and in certificates of deposit and other time deposits in an
FDIC Insured Institution is insured to the extent of $100,000 by the Federal
Deposit Insurance Corporation, the Portfolio may invest more than $100,000 with
a single Institution, and any such excess and any interest on the investment
would not be so insured. Deposits in foreign branches of FDIC insured banks are
not insured by the Federal Deposit Insurance Corporation.
The Money Market Portfolio will invest in securities issued by an FDIC
Insured Institution only if such Institution or a security issued by such
Institution (i) has a short-term debt obligation rating in the highest category
by at least two nationally recognized statistical rating organizations
("NRSROs"), or (ii) if rated by two NRSROs in the second-highest category for
short-term debt obligations, are purchased only in the amounts prescribed for
"Second Tier Securities" by Rule 2a-7 under the Investment Company Act of 1940,
as amended, or (iii) if rated only by one NRSRO (with such rating in the highest
category), the investment is submitted to the Board of Directors for approval or
ratification, or (iv) if no such ratings are available, is of comparable quality
in the opinion of the Adviser and, except in the case of a Government security,
the investment is submitted to the Board of Directors of the Fund for approval
or ratification.
The Money Market Portfolio does not invest in securities with a
remaining maturity of greater than 397 calendar days.
<PAGE> 69
The Short U.S. Government Securities Portfolio (the "Short Government
Portfolio") will invest in securities issued by an FDIC Insured Institution only
if such Institution or a security issued by such Institution (i) has a
short-term debt obligation rating in the highest category by one NRSRO, or (ii)
if no such ratings are available, has comparable quality in the opinion of the
Portfolio's investment adviser under the general supervision of the Board of
Directors of the Fund.
Other Current Policies. Under current policies of the Board of
Directors, the Fund has adopted certain voluntary restrictions with respect to
each Portfolio's investments. These restrictions:
(1) prohibit the purchase of obligations of Federal Land Banks, Federal
Intermediate Credit Banks, the Export-Import Bank of the United States,
the Commodity Credit Corporation, the National Credit Union
Administration and the Tennessee Valley Authority;
(2) limit the use of repurchase agreements to repurchase agreements
involving obligations of the U.S. Government, including zero coupon
Treasury securities that have been stripped of either principal or
interest by the U.S. Government so long as the maturity of these
securities does not exceed ten years, and obligations of the Federal
Home Loan Banks, Fannie Mae, the Government National Mortgage
Association, the Federal Farm Credit Banks, the Federal Financing Bank,
the Student Loan Marketing Association and Freddie Mac;
(3) prohibit investments in reverse repurchase agreements until such
time as federal credit unions may invest in them without limitation;
(4) limit the maturities of bankers' acceptances to six months and
prohibit investments in bankers' acceptances of Edge Act corporations
guaranteed by their FDIC-insured parent banks until such time as the
appropriateness of these latter investments for federal credit unions
is clarified; and
(5) prohibit loans of federal funds until such time as investors are
limited to institutions meeting the requirements of Regulation D of the
Board of Governors of the Federal Reserve System.
Although these restrictions are not fundamental policies of the Fund
and may be changed without stockholder vote, the Fund will not alter these
restrictions without notice to stockholders.
See "Investment Restrictions" in this Statement of Additional
Information for a description of additional investment restrictions of the
Portfolios.
PORTFOLIO TURNOVER
The Short U.S. Government Securities Portfolio may engage in trading of
the portfolio securities to take advantage of market variations and the enhance
liquidity. The portfolio turnovers are set forth for certain periods in tables
under "Financial Highlights".
PURCHASE AND REDEMPTION OF SHARES
The Fund believes that shares of both Portfolios are eligible for
purchase without limitation by federal thrifts, national banks and federal
credit unions.
Investors may be charged a fee if they effect transactions through a
broker or agent. Brokers and intermediaries are authorized to accept orders on
the Fund's behalf.
The Fund reserves the right to suspend the right of redemption and to
postpone the date of payment upon redemption (1) for any period during which the
New York Stock Exchange (the "Exchange") is closed, other than customary weekend
and holiday closings, or during which trading on the Exchange is restricted, or
(2) for any period during which an emergency, as defined by the rules of the
Securities and Exchange Commission, exists as a result of which (i) disposal by
the Fund of securities held by each Portfolio is not reasonably practicable, or
(ii) it is not reasonably practicable for the Fund to determine the value of the
Portfolio's net assets, or (3) for such other periods as the Securities and
Exchange Commission, or any successor governmental authority, may by order
permit for the protection of stockholders of each Portfolio.
2
<PAGE> 70
DIVIDENDS, DISTRIBUTIONS, YIELD AND TOTAL RETURN QUOTATIONS
Dividends on shares of the Portfolios are paid monthly on the first
Business Day of each month.
The Fund seeks to maintain for the Money Market Portfolio a net asset
value of $1.00 per share for purchases and redemptions. In order to effectuate
this policy, the Fund may, under certain circumstances, withhold dividends or
make distributions from capital or capital gains.
Net income of the Money Market Portfolio for dividend purposes (from
the time of the immediately preceding determination thereof) will consist of (i)
interest accrued and discount earned (including both original issue and market
discount) less amortization of any premium, (ii) plus all realized net
short-term and long-term gains, if any, on portfolio securities, (iii) less the
accrued expenses attributable to the Portfolio (including the Portfolio's pro
rata share, based on its relative net assets in relation to that of the Short
Government Portfolio for the applicable period, of the fees payable to the
Distributor) and the general expenses of the Fund prorated on the basis of
relative net assets of the Portfolio in relation to the net assets of the Fund's
other portfolios applicable to that period.
From time to time the Money Market Portfolio advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Money Market
Portfolio refers to the income generated by an investment in the Portfolio 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 Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Any agreement by the Adviser and Distributor to reduce or
waive their fees under certain circumstances may cause the Portfolio's yields to
be higher than they otherwise would be.
The Money Market Portfolio's seven-day yield and seven-day effective
yield for the period ended October 31, 1998, were 4.60% and 4.71%, respectively.
Without fee waivers, the seven-day yield would have been 4.45%, and the
seven-day effective yield would have been 4.56%. The seven-day yield was
calculated by dividing the aggregate net income per share for dividend purposes
(excluding, however, any realized gains or losses) for the seven-day period by
the average net asset value per share for such period and multiplying this
return by 365/7. The seven-day effective yield was calculated similarly, but,
when annualized, all income earned over the seven-day period was assumed to be
reinvested.
From time to time in sales literature, the Money Market Portfolio may
quote a yield for a period either less than or greater than seven days. Any
quotation of yield for a period of either less than or greater than seven days
will identify the length of and the date of the last day in the base period used
in computing that quotation. Any such quotation will also include the seven-day
yield and effective yields of the same day.
From time to time the Money Market Portfolio may also compare its
performance with various indices and investments, other performance measures or
rankings, or other mutual funds, or indices or averages of other mutual funds.
Net income of the Short Government Portfolio for dividend purposes
(from the time of the immediately preceding determination thereof) will consist
of (i) interest accrued and discount earned (including both original issue and
market discount) less amortization of any premium, (ii) less the accrued
expenses attributable to the Portfolio (including the Portfolio's pro rata
share, based on its relative net assets in relation to that of the Money Market
Portfolio for the applicable period, of the fees payable to the Distributor) and
the general expenses of the Fund prorated on the basis of relative net assets of
the Portfolio in relation to the net assets of the Fund's other portfolios
applicable to that period.
From time to time the Short U.S. Government Portfolio advertises its
"yield" and "total return." These figures are based on historical earnings and
are not intended to indicate future performance.
3
<PAGE> 71
The "yield" of a Portfolio refers to the income generated by an
investment in the Portfolio over a 30-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 30-day period is assumed to be
generated each 30-day period for twelve periods and is shown as a percentage of
the investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period.
The "total return" of a Portfolio shows what an investment in the
Portfolio would have earned over a specified period of time, assuming that all
distributions and dividends by the Portfolio were reinvested on the reinvestment
dates during the period and less all recurring fees. Any agreement by the
Adviser and Distributor to reduce or waive their fees under certain
circumstances may cause a Portfolio's yield and total return to be higher than
they otherwise would be.
For the 30-day period ended October 31, 1998, the Short Government
Portfolio's annualized yield was 5.67%. The average annual total rates of return
for the periods ended October 31, 1998 were as follows:
<TABLE>
<S> <C>
One year 7.08%
Five years 5.57%
Ten years 7.15%
</TABLE>
The annualized yield shown above was computed by dividing the aggregate
net income per share for dividend purposes for the 30-day period by the
Portfolio's net asset value on October 31, 1998. The 30-day yield was then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net income per share for dividend purposes.
The total return for each period shown above was computed by assuming a
hypothetical initial investment of $1,000 on the first day of such period. It
was then assumed that all dividends and distributions over the period were
reinvested and that, at the end of such period, the entire amount was redeemed.
The average annual total rate of return was then determined by calculating the
annual rate required for the initial payment to grow to the amount which would
have been received upon redemption (i.e., the average annual compound rate of
return).
From time to time, the Short Government Portfolio may quote a "dividend
distribution rate" in sales literature. The "dividend distribution rate"
represents the aggregation of actual distributions made, representing dividends,
realized short-term capital gains and certain realized long-term capital gains.
It does not reflect unrealized gains or losses. The "dividend distribution rate"
differs from yield in that certain non-recurring components may be included. Any
quoted "divided distribution rate," therefore, should be considered along with,
and not as a substitute for, the yield and total rate of return of the
Portfolio.
From time to time, the Short Government Portfolio's performance may be
compared with various indices and investments, other performance measures or
rankings, or other mutual funds, or indices or averages of other mutual funds.
4
<PAGE> 72
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors. The Directors are
responsible for managing the Fund's business affairs and for exercising all the
Fund's powers except those reserved for the stockholders. The Directors'
responsibilities include reviewing the actions of the Fund's investment adviser,
distributor and administrator.
DIRECTORS AND OFFICERS
Directors and Officers of the Fund, together with information as to
their principal business occupations during the last five years, are shown
below. Each director who is an "interested person" of the Fund, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), is indicated by
an asterisk.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
RICHARD M. AMIS (AGE 48) Director
630 Clarksville Street
Paris, TX 75460
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
President, First Federal Savings & Loan Association since 1984;
Director, First Financial Trust Company; formerly Chairman, Texas Savings and
Community Bankers Association.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
ARTHUR G. DE RUSSO (AGE 78) Director
5397 S.E. Major Way
Stuart, FL 34997
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chief Executive Officer, Eastern Financial Federal Credit Union from
1974 to 1992; Chairman and Director, First Credit Union Trust Co., Inc. from
1988 to 1992; President of the Airline Credit Union Conference in 1991;
Director, Honor ATM Network, Florida from 1985 to 1990.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
DAVID F. HOLLAND (AGE 57) Director
17 New England Executive Park
Burlington, MA 01803
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chairman of the Board since 1989 and Chief Executive Officer since 1986
of Boston Federal Savings Bank; Director of Fund from 1988 to 1989 and since
1993; Director of Federal Home Loan Bank of Boston; until December 1997 Chairman
of America's Community Banking Partners, Inc. and Director of ACB Investment
Services, Inc.; Director of M.S.B. Fund, Inc. since 1997; Director and Chairman
since December 1995 of Center for Financial Studies; Director of NYCE
Corporation since 1995; Director from 1990 to 1995 and Chairman 1993-1994 of
America's Community Bankers; member from 1995 to 1997 and President since 1997
of Thrift Institutions Advisory Council.
5
<PAGE> 73
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
GERALD J. LEVY (AGE 67) Vice Chairman of the
4000 W. Brown Deer Road Board and Director
Milwaukee, WI 53209
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chairman and Chief Executive Officer, Guaranty Bank, S.S.B. since 1984
(from 1959 to 1984, he held a series of officer's positions, including
President). Chairman, 1986, United States League of Savings Institutions;
Director of FIserv, Inc. since 1986; Director since 1995 of the Republic
Mortgage Insurance Company; Director of the Federal Asset Disposition
Association from 1986 to 1989; and, previously Director and Vice Chairman,
Federal Home Loan Bank of Chicago and member of Advisory Committee of the
Federal Home Loan Mortgage Corporation and Federal National Mortgage
Corporation.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
RODGER D. SHAY* (AGE 62) Chairman of the Board and
1000 Brickell Avenue Director
Miami, FL 33131
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Chairman and Director of Shay Assets Management, Inc. since August 1997
(previously President and Director from 1990 to August 1997); Chairman and
Director of Shay Financial Services, Inc. since August 1997 (previously
President and Director from 1990 to August 1997); President, Chief Executive
Officer and member of the Managing Board of Shay Assets Management Co. from 1990
to December 1997; President, Chief Executive Officer and member of the Managing
Board of Shay Financial Services Co. from 1990 to December 1997; Director from
1986 to 1991 and President from 1986 to 1992, U.S. League Securities, Inc.; Vice
President since 1995 of Institutional Investors Capital Appreciation Fund, Inc.
and M.S.B. Fund, Inc.; Director, First Home Savings Bank, S.L.A. since 1990;
previously Director, Asset Management Fund, Inc., from 1985 to 1990; President
of Bolton Shay and Company and Director and officer of its affiliates from 1981
to 1985; Previously, employed by certain subsidiaries of Merrill Lynch & Co.
from 1955 to 1981, where he served in various executive positions including
Chairman of the Board of Merrill Lynch Government Securities, Inc., Chairman of
the Board of Merrill Lynch Money Market Securities, Inc. and Managing Director
of the Debt Trading Division of Merrill Lynch, Pierce, Fenner & Smith Inc.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
EDWARD E. SAMMONS, JR. (AGE 59) President and Treasurer
230 West Monroe Street
Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
President of Shay Assets Management, Inc. since August 1997
(previously Executive Vice President from 1990 to August 1997); Executive Vice
President and member of the Managing Board of Shay Assets Management Co. from
1990 to December 1997. Executive Vice President and member of the Managing
Board of Shay Financial Services Co. from 1990 to December 1997 and Executive
Vice President of Shay Financial Services, Inc., from 1990 to August 1997; Vice
President and Secretary since 1995 of Institutional Investors Capital
Appreciation Fund, Inc. and M.S.B. Fund, Inc.
6
<PAGE> 74
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
ROBERT T. PODRAZA (Age 54) Vice President and Assistant
230 West Monroe Street Treasurer
Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Vice President of Shay Investment Services, Inc. since 1990; Vice
President since 1990 and Chief Compliance Officer since 1997 of Shay Financial
Services, Inc.; Vice President since 1990 and Chief Compliance Officer since
1997 of Shay Assets Management, Inc.; Chief Compliance Officer of Shay Financial
Services Co. and Shay Assets Management Co. from 1989 to 1997; Director of the
National Society of Compliance Professionals since 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
DANIEL K. ELLENWOOD (AGE 29) Secretary
230 West Monroe Street
Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Secretary of the Fund since April 1998; Operations Analyst, Shay Assets
Management, Inc. since November 1997; Compliance Analyst, Shay Financial
Services, Inc. since October 1996.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH FUND
- ---------------- ------------------
<S> <C>
DORIS J. PAVEL (Age 44) Assistant Secretary
230 West Monroe Street Chicago, IL 60606
</TABLE>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS AND PRIOR RELEVANT EXPERIENCE:
Assistant Secretary, Asset Management Fund, Inc. since 1993;
Administrative Manager; Shay Investment Services, Inc., since December 1997;
Administrative Manager; ACB Investment Services Co., 1993 to December 1997, and
previously Administrative Assistant for several affiliated firms since 1987.
The following table sets forth the compensation earned by directors
from the Fund for the fiscal year ended October 31, 1998:
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL
COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON TOTAL
DIRECTOR THE FUND PART OF FUND EXPENSES RETIREMENT COMPENSATION
- -------- ----------------- --------------------- ---------------- ------------
<S> <C> <C> <C> <C>
Richard M. Amis $ 14,500 0 0 $ 14,500
Arthur G. DeRusso 13,500 0 0 13,500
David F. Holland 14,500 0 0 14,500
Leon T. Kendall(1) 3,375 0 0 3,375
Gerald J. Levy 13,000 0 0 13,000
Rodger D. Shay 0 0 0 0
</TABLE>
(1) Retired December 6, 1997.
The following table provides certain information at November 30, 1998
as to the Portfolio with respect to persons known to the Fund to be beneficial
(and record) owners (having sole voting and dispositive power) of 5% or more of
the shares of common stock of the Money Market Portfolio and the Short
Government Portfolio:
7
<PAGE> 75
<TABLE>
<CAPTION>
NUMBER PERCENT OF PORTFOLIO'S
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OUTSTANDING COMMON STOCK
- ------------------------------------ --------- ------------------------
<S> <C> <C>
MONEY MARKET PORTFOLIO:
- -----------------------
First Federal Savings and Loan of Westchester 6,778,829 10.44%
221 Mannheim Road
Westchester, IL 60154
Anchor Bank, FSB 5,500,000 8.47%
P.O. Box 7933
Madison, WI 53707
Windsor Federal Savings Bank 5,023,180 7.73%
250 Broad Street
Windsor, CT 06095
Liberty Federal Savings Bank 3,461,372 5.33%
P.O. Box 1028
Enid, OK 73702
Winter Hill Federal Savings Bank 3,358,221 5.17%
342 Broadway
Sommerville, MA 02145
SHORT U.S. GOVERNMENT PORTFOLIO
- -------------------------------
Calumet Federal Savings & Loan 982,562 8.60%
1350 East Sibley Blvd
Dolton, IL 60419
Greater South Texas Bank, FSB 950,247 8.32%
P.O. Box 648
Falfurrias, TX 78355
Timberland Bancorp 673,041 5.89%
P.O. Box 697
Hoquiam, WA 98550
First Federal Savings and Loan 647,733 5.67%
320 East Main Street
Lincolnton, NC 28092
</TABLE>
As of November 30, 1998, one of the directors had, through the
institutions he serves as an officer, shared voting and investment power over
433,683 shares (0.67%) of the Money Market Portfolio. None of the directors had,
as of November 30, 1998, through the financial institutions for which they serve
as officers, voting and investment power over any shares of the Short Government
Portfolio.
INVESTMENT ADVISER AND ADMINISTRATOR
The investment adviser of the Fund since December 8, 1997 is Shay
Assets Management, Inc. (the "Adviser"), a Florida corporation, with its
principal office at 230 West Monroe Street, Chicago, Illinois 60606. The Adviser
is registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and is a wholly owned subsidiary of Shay Investment Services,
Inc., a closely held corporation controlled by Rodger D. Shay, the President of
the Fund.
Effective December 8, 1997, the Adviser succeeded to the investment
adviser business of Shay Assets Management Co. ("SAMC"), which had been the
Fund's investment adviser since 1990. SAMC was a general partnership that
consisted of two general partners, Shay Assets Management, Inc., the Fund's
current adviser, and ACB Assets Management, Inc. ("ACBAM"), each of which held a
fifty percent interest in the partnership. Shay Assets Management, Inc. is
controlled by Rodger D. Shay and ACBAM is an indirect wholly owned subsidiary of
America's Community Bankers ("ACB"). On December 8, 1997, Shay Assets
Management, Inc. purchased ACBAM's 50% interest in SAMC and the investment
adviser operations were transferred to the Adviser.
8
<PAGE> 76
The initial term of the Investment Advisory Agreement between the Fund
and the Adviser (the "Advisory Agreement"), was completed as to each Portfolio
on March 1, 1999, and now continues from year to year thereafter, subject to
termination by the Fund or the Adviser as hereinafter provided, if such
continuance is approved at least annually by a majority of the outstanding
shares (as defined under "General Information" in this Statement of Additional
Information) of the Portfolio or by the Fund's Board of Directors. The Advisory
Agreement must also be approved annually by the vote of a majority of the
directors of the Fund who are not parties to the Advisory Agreement or
"interested persons" of any party thereto. All directors' votes must be cast in
person at a meeting called for the purpose of voting on such approval.
As compensation for the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser a fee, payable monthly, computed
as follows with respect to the Money Market Portfolio: 0.15% per annum of the
average daily net assets of the Portfolio up to and including $500 million;
0.125% per annum of the next $500 million of such net assets; and 0.10% per
annum of such net assets over $1 billion. The Adviser may supplementally waive
advisory fees in an amount up to but not to exceed 0.15% of the average daily
net assets of the Portfolio. This supplemental waiver agreement may be
terminated at any time by the Adviser. For the Fund's fiscal year ended October
31, 1998 (for the period beginning December 8, 1997), the Adviser was paid $0
(net of fee waivers of $80,505) with respect to the Money Market Portfolio. For
the Fund's fiscal years ended October 31, 1998 (through December 7, 1997), 1997
and 1996, the Fund paid SAMC fees of $0 (net of fee waivers of $7,695), $0 (net
of fee waivers of $83,068), and $0 (net of fee waivers of $101,717),
respectively, with respect to the Money Market Portfolio.
As compensation for the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser a fee, payable monthly, computed
as follows with respect to the Short Government Portfolio: 0.25% per annum of
the average daily net assets of the Portfolio up to and including $500 million;
0.175% per annum of the next $500 million of such net assets; 0.125% per annum
of the next $500 million of such assets; and 0.10% per annum of such net assets
over $1.5 billion. For the Fund's fiscal year ended October 31, 1998 (for the
period beginning December 8, 1997), the Fund paid the Adviser $245,016 with
respect to the Short Government Portfolio. For the Fund's fiscal years ended
October 31, 1998 (through December 7, 1997), 1997 and 1996, the Fund paid SAMC
fees of $29,777, $339,060, and $446,257, respectively, with respect to the Short
Government Portfolio.
The Adviser may from time to time enter into arrangements with
entities such as trade associations and affinity groups ("organizations")
whereby the Adviser agrees to pay such an organization a portion of the
management fees received by the Adviser with respect to assets invested in the
Fund by members of the organization for certain services or products (such as
use of logos or membership lists, bundling with or placement of articles in
newsletters or other organization publications, directory listings, and space
at trade shows) provided by the organization.
The Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by any
portfolio of the Fund in connection with the matters to which the Advisory
Agreement relates, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the Advisory
Agreement.
The Advisory Agreement will terminate automatically upon its assignment
and is terminable with respect to each Portfolio at any time without penalty by
the Board of Directors of the Fund or by a vote of a majority of the outstanding
shares (as defined under "General Information" in this Statement of Additional
Information) of the Portfolio on 60 days' written notice to the Adviser, or by
the Adviser on 90 days' written notice to the Fund.
The Portfolio Managers of the Adviser responsible for making investment
decisions concerning the Fund's investments are Edward E. Sammons, Jr., Rodger
D. Shay, Richard Blackburn, Rodger D. Shay, Jr. and Gregory J. Wisniewski. For
information as to the principal occupations during the past five years of
Messrs. Sammons and Shay, who are also officers of the Fund, see "Management of
the Fund" in this Statement of Additional Information. The principal business
occupations during the past five years and professional backgrounds of the
Portfolio Managers who are not also officers of the Fund are shown below
following each of their names and business addresses.
9
<PAGE> 77
RICHARD BLACKBURN
230 West Monroe Street
Chicago, IL 60606
Portfolio Manager of the Adviser and SAMC, the Fund's former adviser,
since 1991. With approximately twenty-five years of experience in the securities
industry, his previous employers also include Harris Trust & Savings Bank,
Merrill Lynch, Pierce, Fenner & Smith Inc. and the First National Bank of
Chicago. Mr. Blackburn's primary expertise is in the mortgage securities
markets, particularly in the area of floating and/or adjustable rate securities.
RODGER D. SHAY, JR.
1000 Brickell Avenue
Miami, FL 33131
Portfolio Manager of the Adviser and SAMC, the Fund's former adviser,
since 1991. President of Shay Financial Services, Inc., since August 1997,
previously Senior Vice President from 1994 to August 1997, and Vice President
from 1991 to 1993. He was previously employed by Merrill Lynch, Pierce, Fenner
and Smith Inc. where he served as a senior trader and manager of collateralized
mortgage obligation trading. Mr. Shay's primary expertise is in the mortgage
securities market, particularly in the area of collateralized mortgage
obligations.
GREGORY J. WISNIEWSKI
230 West Monroe Street
Chicago, Illinois 60606
Portfolio Manager of the Adviser and SAMC, the Fund's former adviser,
since 1994. From 1990 to 1994, Vice President of Shay Financial Services, Inc.
and of an affiliate, Shay Government Securities, Inc., and from 1985 to 1990, an
account executive of predecessors of these firms. His previous employers also
include The Chicago Corporation, where he served as an account executive and
financial futures trader, and Harris Trust and Savings Bank, where he served
variously as a manager of the portfolios of correspondent banks and as the
manager of the commercial paper portfolio of Harris Bankcorp.
The Fund's administrative agent (the "Administrator") with respect to
each Portfolio is PFPC Inc. ("PFPC"), a wholly-owned subsidiary of PNC Bank
Corp. Pursuant to the terms of the Restated Administration Agreement (the
"Administration Agreement") dated as of March 1, 1991, as amended, between the
Fund and the Administrator, the Administrator performs various administrative
services for the Fund, including (i) assisting in supervising all aspects of the
Portfolios' operations other than those assumed by the Adviser, the Distributor,
the custodian or the transfer and dividend agent, (ii) providing the Portfolios
with the services of persons competent to perform such administrative and
clerical functions as are necessary in order to provide effective administration
of the Portfolios, (iii) maintenance of each Portfolio's books and records, (iv)
preparation of various filings, reports, statements and returns filed with
governmental authorities or distributed to stockholders of each Portfolio, (v)
computation of each Portfolio's net asset value for purposes of the sale and
redemption of its shares, and (vi) computation of each Portfolio's daily
dividend. Certain functions relating to state "blue sky" qualification services
in any of the states where the Portfolios are registered are subject to
additional charges by the Administrator that are not included in the fee rates
and minimum annual fee described below.
As compensation for the services rendered by the Administrator under
the Administration Agreement, the Fund pays the Administrator a fee, computed
daily and payable monthly, with respect to each of the Money Market Portfolio
and the Short Government Portfolio at the rate of 0.03% per annum of the
Portfolio's net assets up to and including $1 billion; 0.02% per annum of the
next $1 billion of net assets; and 0.01% per annum of the Portfolio's net assets
over $2 billion, with a minimum annual fee of $393,200 for all the Fund's five
portfolios taken together. If applicable, the minimum fee is allocated among the
Fund's five portfolios based on relative average net assets. For the fiscal
years ended October 31, 1998, 1997 and 1996, the Fund paid the Administrator
fees pursuant to the Administration Agreement of $20,308, $20,809, and $20,328,
respectively, for the Money Market Portfolio. For the fiscal years ended October
31, 1998, 1997 and 1996, the Fund paid the Administrator fees pursuant to the
Administration Agreement of $38,389, $50,414, and $53,968, respectively, for the
Short Government Portfolio.
10
<PAGE> 78
The Fund is responsible for the payment of its expenses. Such expenses
include, without limitation, the fees payable to the Adviser, the Administrator
and the Distributor (see "Distributor" below) with respect to each Portfolio,
the fees and expenses of the Fund's custodian and transfer and dividend agent
with respect to each Portfolio, any brokerage fees and commissions of each
Portfolio, any portfolio losses of the Portfolio, filing fees for the
registration or qualification of each Portfolio's shares under Federal or state
securities laws, the Portfolio's pro rata share of taxes, interest, costs of
liability insurance, fidelity bonds or indemnification, any costs, expenses or
losses arising out of any liability of, or claim for damages or other relief
asserted against, the Fund with respect to the Portfolio for violation of any
law, each Portfolio's pro rata share of legal and auditing fees and expenses,
expenses of preparing and setting in type prospectuses, proxy material, reports
and notices and the printing and distributing of the same to the stockholders of
each Portfolio and regulatory authorities, the Portfolio's pro rata share of
compensation and expenses of the Fund's directors and officers who are not
affiliated with the Adviser, the Administrator, the Distributor, or the transfer
and dividend agent, and extraordinary expenses incurred by the Fund with respect
to each Portfolio.
DISTRIBUTOR
Shay Financial Services, Inc. is a registered broker-dealer
and the Fund's principal distributor (the "Distributor"). The Distributor, a
Florida corporation, is a wholly owned subsidiary of Shay Investment Services,
Inc., which is a closely held corporation controlled by Rodger D. Shay.
From September 18, 1996 until December 8, 1997, Shay Financial
Services Co. ("SFSC") had been the Fund's principal distributor. Prior to
September 18, 1996, SFSC had acted as the Fund's sponsor of its shares. SFSC was
a general partnership that consisted of two general partners, Shay Financial
Services, Inc., the Fund's current distributor, and ACB Securities, Inc.
("ACBS"), each of which held a fifty percent interest in the partnership. Shay
Financial Services, Inc. is controlled by Rodger D. Shay and ACBS is an indirect
wholly-owned subsidiary of ACB. On December 8, 1997, Shay Financial Services,
Inc. purchased ACBS' 50% interest in SFSC and the broker-dealer operations and
distribution activities were transferred to the Distributor.
As compensation for distribution services, the Fund pays the
Distributor a fee, payable monthly, with respect to the Portfolios at the rate
of 0.15% per annum of the combined average daily net assets of both Portfolios
up to and including $500 million; plus 0.125% per annum of the next $500 million
of such combined net assets; plus 0.10% per annum of the next $1 billion of such
combined net assets; plus 0.075% per annum of such combined net assets over $2
billion. This fee is allocated between the two Portfolios based on their
relative average net assets.
For the fiscal year ended October 31, 1998 (for the period beginning
December 8, 1997), the Fund paid the Distributor fees of $80,505 with respect to
the Money Market Portfolio. For the fiscal years ended October 31, 1998 (through
December 7, 1997), 1997 and 1996, the Fund paid SFSC fees pursuant to the Rule
12b-1 plan, as in effect, of $7,695 (through December 7, 1997), $83,068, and
$101,717, respectively, with respect to the Money Market Portfolio. For the
fiscal year ended October 31, 1998 (for the period beginning December 8, 1997),
the Fund paid the Distributor fees of $147,009 with respect to the Short
Government Portfolio. For the fiscal years ended October 31, 1998 (through
December 7, 1997), 1997 and 1996, the Fund paid SFSC fees pursuant to the Rule
12b-1 plan, as in effect, of $17,867, $203,346, and $267,754, respectively, with
respect to the Short Government Portfolio.
The Distributor is obligated under the Distribution Agreement to bear
the costs and expenses of printing and distributing copies of prospectuses and
annual and interim reports of the Fund (after such items have been prepared and
set in type) that are used in connection with the offering of shares of the Fund
to investors, and the costs and expenses of preparing, printing and distributing
any other literature used by the Distributor in connection with the offering of
the shares of the Portfolios for sale to investors.
11
<PAGE> 79
The Fund has been informed by the Distributor that during its fiscal
year ended October 31, 1998, of the $595,550 fee received in the aggregate by
SFSC and the Distributor from the Fund with respect to the Portfolios, the
following expenditures were made:
<TABLE>
<S> <C>
Advertising................................................... $ 11,609
Printing...................................................... 8,777
Employee compensation and costs............................... 342,474
Staff travel and expense...................................... 25,433
Other administrative expense.................................. 48,482
--------
Total........................................................ $436,775
========
</TABLE>
Shay Financial Services, Inc., the Fund's Distributor, and its
affiliated persons, including Rodger D. Shay, who is a Director and the Chairman
of the Board of the Fund, Edward E. Sammons Jr., who is President and Treasurer
of the Fund, Robert T. Podraza, who is Vice President and Assistant Treasurer of
the Fund, and Daniel K. Ellenwood, who is the Secretary of the Fund, have a
direct or indirect financial interest in the operation of the Fund's Rule 12b-1
Plan and related Distribution Agreement. None of the Directors who are not
interested persons of the Fund have any direct or indirect financial interest in
the operation of the Fund's Rule 12b-1 Plan and related Distribution Agreement.
The Fund has appointed the Distributor to act as the principal
distributor of the Fund's shares pursuant to the Distribution Agreement dated
December 8, 1997 between the Fund and the Distributor (the "Distribution
Agreement"). The initial term of the Distribution Agreement was completed as of
March 1, 1999 and now continues in effect from year to year thereafter, subject
to termination by the Fund or the Distributor as hereinafter provided, if
approved at least annually by the Fund's Board of Directors and by a majority of
the directors who are not "interested persons" of the Fund and have no direct or
indirect financial interest in the arrangements contemplated by the agreement.
The Fund's Rule 12b-1 Plan requires the Fund's Board of Directors to make a
quarterly review of the amount expended under the Rule 12b-1 Plan and the
purposes for which such expenditures were made. The Rule 12b-1 Plan may not be
amended to increase materially the amount paid by the Fund thereunder without
stockholder approval. All material amendments to the Rule 12b-1 Plan must be
approved by the Fund's Board of Directors and by the "disinterested" directors
referred to above. The Rule 12b-1 Plan will terminate automatically upon its
assignment and is terminable at any time without penalty by a majority of the
Fund's directors who are "disinterested" as described above or by a vote of a
majority of the outstanding shares (as defined under "General Information" in
this Statement of Additional Information) of each Portfolio affected thereby on
60 days' written notice to the Distributor, or by the Distributor on 90 days'
written notice to the Fund. Although the Distributor's fee is calculable
separately with respect to each Portfolio of the Fund and the Distributor
reports expense information to the Fund on a portfolio-by-portfolio basis, any
12b-1 fee received by the Distributor in excess of expenses for a given
Portfolio may be used for any purpose, including payment of otherwise
unreimbursed expenses incurred in distributing shares of another Portfolio or to
compensate another dealer for distribution assistance. The 12b-1 Plan does not
permit a Portfolio to be charged for interest, carrying, or other financing
charges on any such unreimbursed carryover amounts, but it does provide for
reimbursement for a portion of the Distributor's overhead expenses.
ADMINISTRATOR AND TRANSFER AND DIVIDEND AGENT
PFPC Inc. ("PFPC"), 103 Bellevue Parkway, Wilmington, Delaware 19809,
performs various administrative services for the Fund with respect to the
Portfolios. These services include maintenance of books and records, preparation
of governmental filings and stockholder reports, and computation of net asset
values and daily dividends. For the Fund's fiscal year ended October 31, 1998,
the Fund paid PFPC a fee of 0.03% of each Portfolio's average net assets for the
above administrative services. PFPC is also the transfer and dividend agent for
each Portfolio's shares.
CUSTODIAN
PFPC Trust Company, Philadelphia, Pennsylvania, is the custodian of
each Portfolio's investments. PFPC Trust Company and PFPC are affiliates of PNC
Bank Corp.
12
<PAGE> 80
DETERMINATION OF NET ASSET VALUE
With respect to the Money Market Portfolio, the Fund relies on an
exemptive rule (Rule 2a-7) promulgated by the Securities and Exchange Commission
permitting the Fund to use the amortized cost procedure in valuing the Money
Market Portfolio's investments. This 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. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
The Board of Directors of the Fund has determined that, absent unusual
circumstances, the amortized cost method of valuation will fairly reflect the
value of each stockholder's interest in the Portfolio. As a condition to the use
of the amortized cost method of valuation pursuant to such exemptive rule, the
Money Market Portfolio is required to maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase instruments having remaining
maturities of thirteen months or less only, and invest only in securities
determined by the Board of Directors to be of eligible quality with minimal
credit risks. (See rating requirements under "FDIC Insured Institutions" in this
Statement of Additional Information.) An instrument which has a variable or
floating rate of interest may be deemed under certain circumstances to have a
maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal amount can be
recovered through demand.
The Board of Directors has established procedures reasonably designed,
taking into account current market conditions and the Portfolio's investment
objective, to stabilize the price per share of shares of the Money Market
Portfolio as computed for the purpose of distribution and redemption at $1.00.
Such procedures include review by the Board of Directors, as it may deem
appropriate and at such intervals as are reasonable in light of current market
conditions, of the deviation between the net asset value per share calculated by
using available indications of market value and the net asset value per share
using amortized cost values. The Money Market Portfolio's investment adviser has
been delegated the authority to determine the market values of the securities
held by the Portfolio through use of its matrix pricing system, provided that
any changes in the methods used to determine market values are reported to and
reviewed by the Board of Directors.
The extent of any deviation between the net asset value per share of
the Money Market Portfolio based upon available market quotations or market
equivalents and $1.00 per share based on amortized cost will be examined by the
Board of Directors. If such deviation exceeds 1/2 of 1%, the Board of Directors
will promptly consider what action, if any, will be initiated. In the event the
Board of Directors determines that a deviation exists that may result in
material dilution or other unfair results to investors or existing stockholders,
it shall take such corrective action as it deems appropriate to eliminate or
reduce to the extent reasonably practicable such dilution or unfair results,
including the sale of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends
or payment of distributions from capital or capital gains, redemptions of shares
in kind, or establishing a net asset value per share by using available market
quotations.
For purposes of determining the net asset value per share of the Short
Government Portfolio, its investments for which market quotations are readily
available will be valued at the mean between the most recent bid and asked
prices, which may be furnished by a pricing service, at prices provided directly
by market makers, or using matrix pricing methods. Portfolio securities for
which market quotations are not readily available, and other assets, will be
valued at fair value using methods determined in good faith by the Board of
Directors. Short-term instruments maturing within 60 days of the valuation date
may be valued based upon their amortized cost. The Board of Directors will
review valuation methods regularly for the Short Government Portfolio in order
to determine their appropriateness.
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TAXES
Each of the Fund's portfolios, including these Portfolios, is treated
as a separate corporation for Federal income tax purposes, and thus the
provisions of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to regulated investment companies are applied to each
portfolio separately, rather than to the Fund as a whole. In addition, net
long-term and short-term capital gains and losses, net investment income, and
operating expenses are determined separately for each portfolio.
Each Portfolio qualifies as a regulated investment company under
Subchapter M of the Code. In order to so qualify each Portfolio must, among
other things: (a) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of its total assets is represented by
cash, Government securities and other securities, including loans of Federal
Funds for the Money Market Portfolio only, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of the value of
the Portfolio's assets or 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than Government securities) and (b)
derive at least 90% of its gross income from dividends, interest, proceeds from
loans of stock and securities, gains from the sale or other disposition of stock
or securities, and other income derived with respect to its business of
investing in stock or securities. If each Portfolio qualifies as a regulated
investment company, it will not be subject to Federal income tax on its income
and gains distributed to shareholders, provided at least 90% of its investment
company taxable income earned in the taxable year (computed without regard to
the deduction for dividends paid) is so distributed.
Dividends of the Money Market Portfolio's net investment income (which
generally includes income net of operating expenses), and distributions of net
short-term capital gains are taxable to stockholders as ordinary income whether
reinvested in shares or paid in cash.
Dividends of the Short Government Portfolio's net investment income
(which generally includes income other than capital gains, net of operating
expenses), and distributions of net short-term capital gains (i.e., the excess
of net short-term capital gains over net long-term capital losses) are taxable
to stockholders as ordinary income whether reinvested in shares or paid in cash.
Distributions of net long-term capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) are taxable to stockholders as
long-term capital gains, regardless of how long shares of the Portfolio have
been held, whether reinvested in shares or paid in cash. Under the Code, net
long-term capital gains received by corporate stockholders (including long-term
capital gain distributions by the Portfolio) are taxed at the same rates as
ordinary income. Net long-term capital gains received by individual stockholders
(including long-term capital gain distributions by the Portfolio) are generally
taxed at a maximum rate of 20%.
Because none of either Portfolio's income will consist of dividends
from domestic corporations, dividends of net investment income as well as
distributions of net long-term and short-term capital gains will not qualify for
the dividends received deduction available to corporate shareholders.
Gain or loss realized upon a sale or redemption of shares of the Short
Government Portfolio by a stockholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the shares have been held for more
than one-year and otherwise as short-term capital gain or loss. Any loss
realized by a stockholder upon the sale of shares in the Short Government
Portfolio held one year or less will be treated as a long-term capital loss,
however, to the extent of any long-term capital gain distributions received by
the stockholder with respect to such shares.
Any capital gains distribution received shortly after the purchase of
shares of the Short Government Portfolio reduces the net asset value of the
shares by the amount of the distribution and, although in effect a return of
capital, will be taxable to the stockholder. If the net asset value of shares of
the Short Government Portfolio were reduced below the stockholder's cost by
distributions representing gains realized on sales of securities, such
distributions would be a return of investment though taxable in the same manner
as other dividends or distributions.
Each Portfolio generally will be subject to a 4% nondeductible excise
tax to the extent the Portfolio does not meet certain minimum distribution
requirements by the end of each calendar year. To avoid the imposition of the 4%
excise tax, it may be necessary for a dividend to be declared in December and
actually paid in January of the following year, which will be treated as having
been received by stockholders on December 31 of the calendar year in which
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<PAGE> 82
declared. Under this rule, therefore, a stockholder may be taxed in one year on
dividends or distributions actually received in January of the following year.
Dividends and distributions may be subject to state and local taxes.
The foregoing discussion is not intended to be a full discussion of
income tax laws and their effect on shareholders. Investors should consult their
own tax advisors as to the tax consequences of ownership of shares.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities for each Portfolio usually are
principal transactions. Portfolio securities normally are purchased directly
from the issuer or from an underwriter or market maker for the securities. There
usually, but not always, are no brokerage commissions paid by the Fund for such
purchases, and during the fiscal year ended October 31, 1998, the Fund paid no
brokerage commissions for either Portfolio. Purchases from dealers serving as
market makers may include the spread between the bid and asked prices. The
Adviser attempts to obtain the best price and execution for portfolio
transactions.
Each Portfolio will not purchase securities from, sell securities to,
or enter into repurchase or reverse repurchase agreements with, the Adviser or
any of its affiliates.
Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment under the general
supervision of the Board of Directors of the Fund and in a manner deemed fair
and reasonable to stockholders. The primary consideration is prompt execution of
orders in an effective manner at the best price. On occasion the Adviser on
behalf of each Portfolio may effect securities transactions on an agency basis
with broker-dealers providing research services and/or research-related products
for the Fund. Research services or research-related products may include
information in the form of written reports, reports accessed by computers or
terminals, statistical collations and appraisals and analysis relating to
companies or industries. However, in selecting such broker-dealers, the Adviser
adheres to the primary consideration of best price and execution.
Investment decisions for each portfolio of the Fund are made
independently from those for the other portfolios or other clients advised by
the Adviser. It may happen, on occasion, that the same security is held in one
portfolio of the Fund and the other portfolios of one or more of such other
clients. Simultaneous transactions are likely when several portfolios and
clients are advised by the same investment adviser, particularly when a security
is suitable for the investment objectives of more than one of such portfolios or
clients. When two or more portfolios or other clients advised by the Adviser are
simultaneously engaged in the purchase or sale of the same security, the
transactions are allocated to the respective portfolios or clients, both as to
amount and price, in accordance with a method deemed equitable to each portfolio
or client. In some cases this system may adversely affect the price paid or
received by a portfolio of the Fund or the size of the security position
obtainable for such portfolio.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions for each
Portfolio, none of which may be changed without the approval of a majority of
the outstanding shares of the Portfolio, as defined under "General Information"
in this Statement of Additional Information. The restrictions are the same for
each Portfolio. Accordingly, each Portfolio may not:
(1) Purchase securities other than those qualifying under OTS
Regulations. In the event that the OTS Regulations (as defined in the
Prospectus) are amended to remove assets from the list of assets which
qualify as permissible investments, the Fund will dispose of any
nonqualifying assets held by the Portfolio in such time and manner as
may be permitted by relevant OTS Regulations or, if none, in such time
and manner as the Fund's Board of Directors may determine. Conversely,
if the list of qualifying assets is expanded, the Portfolio will be
free to make investments therein.
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<PAGE> 83
(2) Invest more than 5% of its total assets in the securities of any one
issuer, other than securities issued or guaranteed by the United States
Government or its agencies or instrumentalities, except that up to 25%
of the value of the Portfolio's total assets may be invested without
regard to this 5% limitation.
(3) Enter into repurchase agreements or purchase any other investments
for which market quotations are not readily available, in each case
maturing in more than 7 days if, as a result, more than 10% of the
market value of its total assets would be invested in such repurchase
agreements and such other illiquid investments.
(4) Enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of its total assets, less liabilities
other than the obligations created by reverse repurchase agreements.
(5) Borrow money except from banks for temporary or emergency purposes
and in an amount not exceeding 10% of the value of its net assets, or
mortgage, pledge or hypothecate its assets except in connection with
any such borrowing and in amounts not in excess of 20% of the value of
its net assets. This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is considered to be disadvantageous. The
Portfolio's net income will be reduced if the interest expense of
borrowings incurred to meet redemption requests and avoid liquidation
of portfolio securities exceeds the interest income of those
securities. To the extent that borrowings exceed 5% of the value of the
Portfolio's net assets, such borrowings will be repaid before any
investments are made. The Portfolio's ability to enter into reverse
repurchase agreements is not restricted by this paragraph (5).
(6) Invest more than 25% of its total assets in the securities of
issuers in any single industry; provided that there shall be no such
limitation on the purchase of obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities, or time
deposits (including certificates of deposit), savings deposits and
bankers' acceptances of United States branches of United States banks.
(7) Act as an underwriter of securities, except to the extent that the
Fund may be deemed to be an "underwriter" in connection with the
purchase of securities for the Portfolio directly from an issuer or an
underwriter thereof.
(8) Make loans except that the Portfolio may purchase or hold debt
obligations, enter into repurchase agreements and loan Federal funds
and other day(s) funds to FDIC Insured Institutions (as defined in the
Prospectus), in each case to the extent permitted by the Fund's
investment objective and management policies.
(9) Purchase securities on margin or make short sales of securities;
write or purchase put or call options or combinations thereof; or
purchase or sell real estate, real estate mortgage loans, real estate
investment trust securities, commodities or commodity contracts, or oil
and gas interests.
For purposes of investment restrictions (2) and (6) above as applicable
to the Money Market Portfolio, the Fund considers loans of Federal funds to be
cash equivalents and not securities for purposes of diversification.
ORGANIZATION AND DESCRIPTION OF FUND SHARES
The authorized capital stock of the Fund consists of five classes of
common stock, par value $.001 per share, as follows: (i) Money Market Portfolio
- -- 4.0 billion shares, (ii) Short Government Portfolio -- 500 million shares,
(iii) U.S. Government Mortgage Securities Portfolio -- 500 million shares, (iv)
Intermediate Mortgage Securities Portfolio -- 500 million shares, and (v)
Adjustable Rate Mortgage (ARM) Portfolio -- 500 million shares. The shares of
each class represent interests only in the corresponding portfolio. When issued
and paid for in accordance with the terms of offering, each share is fully paid
and nonassessable. All shares of common stock of the same class have equal
dividend, distribution, liquidation and voting rights and are redeemable at net
asset value, at the option of the stockholder. In addition, the shares have no
preemptive, subscription or conversion rights and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted by the provisions of such Act or applicable state law, or otherwise,
to the holders of the outstanding voting securities of an investment company
such as the Fund shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the
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<PAGE> 84
outstanding shares (as defined under "General Information" in this Statement of
Additional Information) of each class affected by such matter. Rule 18f-2
further provides that a class shall be deemed to be affected by a matter unless
it is clear that the interests of each class in the matter are identical or that
the matter does not affect any interest of such class. However, the Rule exempts
the selection of independent accountants and the election of directors from the
separate voting requirements of the Rule.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Vedder, Price, Kaufman & Kammholz are legal counsel to the Fund and
pass upon the validity of the shares offered by the Prospectus.
PricewaterhouseCoopers LLP have been selected as the Fund's independent
accountants. The financial statements of each Portfolio incorporated in this
Statement of Additional Information by reference to the Fund's Annual Report to
Stockholders for the year ended October 31, 1998 (see "Financial Statements"
below) have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, given on the authority of such firm as experts in
accounting and auditing.
GENERAL INFORMATION
The Fund sends to all of the stockholders of each Portfolio semi-annual
reports and annual reports, including a list of investment securities held by
the Portfolio, and, for annual reports, audited financial statements of each
Portfolio.
As used in each Prospectus and this Statement of Additional
Information, the term "majority," when referring to the approvals to be obtained
from stockholders, means the vote of the lesser of (1) 67% of the Fund's shares
of each class or of the class entitled to a separate vote present at a meeting
if the holders of more than 50% of the outstanding shares of all classes or of
the class entitled to a separate vote are present in person or by proxy, or (2)
more than 50% of the Fund's outstanding shares of all classes or of the class
entitled to a separate vote. The Bylaws of the Fund provide that an annual
meeting of stockholders is not required to be held in any year in which none of
the following is required to be acted on by stockholders pursuant to the 1940
Act: election of directors; approval of the investment advisory agreement;
ratification of the selection of independent public accountants; and approval of
a distribution agreement.
The Prospectus and this Statement of Additional Information do not
contain all the information included in the Registration Statement filed with
the Securities and Exchange Commission under the Securities Act of 1933 with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The Registration Statement, including the exhibits filed therewith,
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in the Prospectus and this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The financial statements required to be included in this Statement of
Additional Information are incorporated herein by reference to the Fund's Annual
Report to Stockholders for the year ended October 31, 1998 (the "Annual
Report"). The Fund will provide the Annual Report without charge to each person
to whom this Statement of Additional Information is delivered.
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<PAGE> 85
ASSET MANAGEMENT FUND, INC.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) (1) Articles of Amendment and Restatement of Articles of
Incorporation of Registrant dated November 9, 1982 (1)/
(2) Articles Supplementary to Articles of Amendment and Restatement of
Articles of Incorporation of Registrant dated November 1, 1983 (1)/
(3) Form of Articles of Amendment of Articles of Incorporation of
Registrant (1)/
(4) Articles Supplementary to Articles of Amendment and Restatement of
Articles of Incorporation of Registrant dated August 16, 1986 (1)/
(5) Articles of Amendment of Articles of Incorporation dated May 4,
1989 (1)/
(6) Articles of Amendment of Articles of Incorporation dated February
23, 1990 (1)/
(7) Articles Supplementary to Articles of Amendment and Restatement of
Articles of Incorporation of Registrant dated June 28, 1991 (1)/
(8) Form of Articles of Amendment of Articles of Incorporation (1)/
(9) Articles of Amendment of Articles of Incorporation dated September
26, 1994 (1)/
(b) By-Laws as restated as of September 20, 1991 (1)/
(c) Not applicable.
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(d) (1) Investment Advisory Agreement, dated September 1, 1990, between
Registrant and Shay Assets Management Co. with respect to the
Short-Term Liquidity Portfolio, the Intermediate-Term Liquidity
Portfolio, the Mortgage Securities Performance Portfolio and the
Corporate Bond Portfolio (1)/
(2) Form of Amendment to the Investment Advisory Agreement with respect
to the Adjustable Rate Mortgage (ARM) Portfolio (1)/
(3) Amendment to the Investment Advisory Agreement, dated November 30,
1992, with respect to the Adjustable Rate Mortgage (ARM) Portfolio
(1)/
(4) Investment Advisory Agreement dated December 8, 1997 between
Registrant and Shay Assets Management, Inc. (3)/
(e) (1) Distribution Agreement (2)/
(2) Distribution Agreement dated December 8, 1997 between Registrant
and Shay Financial Services, Inc. (3)/
(f) Not applicable
(g) (1) Restated Custodian Agreement between Registrant and Provident
National Bank dated March 1, 1991 (1)/
(2) Amendment No. 1 to Restated Custodian Agreement dated June 28, 1991
(1)/
(3) Amendment No. 2 to Restated Custodian Agreement dated June 29, 1991
(1)/
(h) (1)(A) Restated Transfer Agency Agreement between Registrant and
Provident Financial Processing Corporation dated March 1, 1991 (1)/
(1)(B) Amendment No. 1 to Restated Transfer Agency Agreement dated June
28, 1991 (1)/
(2)(A) Restated Administration Agreement between Registrant and
Provident Financial Processing Corporation dated March 1, 1991 (1)/
(2)(B) Amendment No. 1 to Restated Administration Agreement dated June
28, 1991 (1)/
(2)(C) Amendment No. 2 to Restated Administration Agreement dated
September 20, 1991 (1)/
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<PAGE> 87
(i) (1) Opinion and Consent of Vedder, Price, Kaufman & Kammholz with
respect to the Short-Term Liquidity Portfolio, the
Intermediate-Term Liquidity Portfolio, the Mortgage Securities
Performance Portfolio and the Corporate Bond Portfolio dated
December 28, 1990 (1)/
(2) Opinion and Consent of Vedder, Price, Kaufman & Kammholz with
respect to the Adjustable Rate Mortgage (ARM) Portfolio dated
July 2, 1991 (1)/
(3) Consent of Vedder, Price, Kaufman & Kammholz*
(j) Consent of PricewaterhouseCoopers LLP*
(k) None.
(l) (1) Form of Purchase Agreement between Registrant and initial
investors with respect to the Short-Term Liquidity Portfolio (1)/
(2) Form of Purchase Agreement between Registrant and initial investors
with respect to the Mortgage Securities Performance Portfolio dated
November 2, 1983 (1)/
(m) (1) Plan and Agreement Pursuant to Rule 12b-1 between Registrant
and Shay Financial Services Co. dated September 1, 1990 (1)/
(2) Form of Amendment to Plan and Agreement Pursuant to Rule 12b-1 with
respect to the Adjustable Rate Mortgage (ARM) Portfolio (1)/
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(3) Amendment to Plan and Agreement Pursuant to Rule 12b-1 with respect
to the Adjustable Rate Mortgage (ARM) Portfolio dated June 28, 1991
(1)/
(4) Amendment to Plan and Agreement Pursuant to Rule 12b-1 dated
September 18, 1996 (2)/
(5) Amended and Restated Rule 12b-1 Plan (3)/
(n) Financial Data Schedules.*
(o) Not applicable.
(1)/ Previously filed with Post-Effective Amendment No. 26 on or about
February 29, 1996 and incorporated herein by reference.
(2)/ Previously filed with Post-Effective Amendment No. 27 on or about
December 30, 1996 and incorporated herein by reference.
(3)/ Previously filed with Post-Effective Amendment No. 28 on or about
December 21, 1997.
* Filed herewith.
Item 24. Persons Controlled By or Under Common Control with Registrant
None
Item 25. Indemnification.
Section 6 of the Registrant's Articles of Incorporation (as amended
by the Articles of Amendment filed as Exhibit (a)(5)) provides that a
director or officer of the Registrant shall not be liable to the
Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director or officer, except to the extent such
exemption from liability or limitation thereof is not permitted by
law (including the Investment Company Act of 1940) as currently in
effect or as the same may hereafter be amended.
Article VII as of the Registrant's Bylaws (as amended by the
Resolution filed as Exhibit (b)) provides that the Registrant shall
indemnify to the fullest extent permitted by law (including the
Investment Company Act of 1940) as currently in effect or as the same
may hereafter be amended, any person made or threatened to be made a
party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a director,
officer, employee or agent. To the fullest extent permitted by law
(including the Investment Company Act of 1940) as currently in effect
or as the same may hereafter be amended, expenses incurred by any
such person in defending any such action, suit or proceeding shall be
paid or reimbursed by the Registrant promptly upon receipt by it of
an
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undertaking of such person to repay such expenses if it shall
ultimately be determined that such person is not entitled to be
indemnified by the Registrant.
Paragraph 17 of the Distribution Agreement between the Registrant and
Shay Financial Services, Inc. (filed as Exhibit (e)(2)) provides for
indemnification of Shay Financial Services, Inc. by the Registrant
under certain circumstances.
The foregoing indemnification arrangements are subject to the
provisions of Sections 17(h) and (i) of the Investment Company Act of
1940.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, 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 director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by
such director, 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.
The Registrant maintains an insurance policy which insures its
directors and officers against certain civil liabilities.
Item 26. Business and Other Connections of Investment Adviser.
Incorporated herein by reference from the Statements of Additional
Information relating to the Portfolios are the following: the
description of the business of Shay Assets Management, Inc. (the
"Adviser") contained in the Section entitled "Investment Adviser and
Administrator"; the information concerning the organization of Shay
Financial Services, Inc. (the "Distributor") contained in the Section
entitled "Distributor" and the biographical information pertaining to
Messrs. Shay, Sammons, Podraza and Ellenwood contained in the Section
entitled "Investment Adviser and Administrator."
Effective December 8, 1997, the Adviser was appointed the investment
adviser to three registered investment companies:
Institutional Investors Capital Appreciation Fund, Inc., Asset
Management Fund, Inc., and M.S.B. Fund, Inc. In addition, the Adviser
serves as the investment adviser to several savings banks located in
New York on a non-discretionary basis. To service the foregoing funds
and accounts, the Adviser maintains an office in New York City.
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The Adviser is located at 230 West Monroe Street, Chicago, Illinois
60606 and at 1000 Brickell Avenue, Miami, Florida 33131 and also has
an office in New York City. The Adviser is a wholly owned subsidiary
of Shay Investment Services, Inc. ("SISI"), which is a closely held
corporation controlled by Rodger D. Shay. Shay Financial Services,
Inc., the Distributor of the Fund, is also a closely held corporation
of SISI.
<TABLE>
<CAPTION>
BUSINESS AND OTHER CONNECTIONS OF BOARD OF DIRECTORS AND
NAME OFFICERS
- ---- --------------------------------------------------------
<S> <C>
Rodger D. Shay Chairman and Director of the Adviser and Distributor; Shareholder of First
Home Savings Bank, S.L.A., 48
West Main Street, Pennsville, New Jersey
08070 and has been a member of its Board
of Directors since December 1990.
Rodger D. Shay, Jr. President of the Distributor.
Edward E. Sammons, Jr. President of the Adviser.
Robert T. Podraza Vice President, Secretary and Treasurer of both the Adviser and the
Distributor.
</TABLE>
Item 27. Principal Underwriters.
(a) The Distributor serves as the principal distributor for
Institutional Investors Capital Appreciation Fund, Inc., Asset
Management Fund, Inc., and M.S.B. Fund, Inc.
(b) Certain information required by this Item 27 is incorporated herein
by reference to Item 26. Set forth below are the names of the officers
of the Distributor. (Other than those officers who are also officers of
the Registrant)
Item 28. Location of Accounts and Records.
Books and other documents required to be maintained pursuant to
Rule 31a-1(b)(4) and (b)(10) are in the physical possession of the
Fund's Secretary, 230 West Monroe Street, Chicago, Illinois 60606;
accounts, books and other documents required by Rule 31a-1(b)(5)
through (7) and (b)(11) and Rule 31a-1(f) are in the physical
possession of Shay Assets Management, Inc., 230 West Monroe Street,
Chicago, Illinois 60606; all other books, accounts and other
documents required to be maintained under Section 31(a) of the
Investment Company Act of 1940 and the Rules promulgated thereunder
are in the
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physical possession of Provident Financial Processing
Corporation, 103 Bellevue Parkway, Wilmington, Delaware 19809.
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
(a) Not applicable.
(a) Not applicable.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered a copy of registrant's latest annual
report to shareholders upon request and without charge.
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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 amendment
to the registration statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Chicago and State of Illinois on the
26th day of February, 1999
ASSET MANAGEMENT FUND, INC.
By: /s/ Edward E. Sammons, Jr.
---------------------------------
Edward E. Sammons, Jr., President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below on February 26,
1999 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Rodger D. Shay Director and Chairman of the Board
- ---------------------------------------
Rodger D. Shay
/s/ Edward E. Sammons, Jr. President (principal executive officer) and Treasurer
- --------------------------------------- (principal financial and accounting officer)
Edward E. Sammons, Jr.
/s/ Richard M. Amis Director
- ---------------------------------------
Richard M. Amis
/s/ Arthur G. De Russo Director
- ---------------------------------------
Arthur G. De Russo
/s/ David F. Holland Director
- ---------------------------------------
David F. Holland
/s/ Gerald J. Levy Director
- ---------------------------------------
Gerald J. Levy
</TABLE>
C-8
<PAGE> 93
EXHIBIT INDEX
Exhibit
No. Description
- ------ -------------------------------------------
(i)(3) Consent of Vedder Price Kaufman & Kammholz.
(j) Consent of PricewaterhouseCoopers LLP.
(n) Financial Data Schedules.
<PAGE> 1
Consent of Vedder, Price, Kaufman & Kammholz EXHIBIT (I)(3)
February 26, 1999
Asset Management Fund, Inc.
230 West Monroe Street
Chicago, Illinois 60606
We hereby consent to the reference to our name under the heading
"Counsel and Independent Accountants" in the Statements of Additional
Information contained in Post-Effective Amendment No. 30 to the registration
statement of Form N-1A under the Securities Act of 1933 for Asset Management
Fund, Inc. (File No. 2-78808) and to the filing of this consent as an exhibit
to the registration statement.
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
By: /s/ Cathy G. O'Kelly
----------------------
Cathy G. O'Kelly
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 30
to the Registration Statement of Asset Management Fund, Inc. (the "Fund") on
Form N-1A (File No. 2-78808) of our report dated December 4, 1998 on our audit
of the financial statements and financial highlights of the Fund which report
is included in the Annual Report to Shareholders for the year ended October 31,
1998 which is incorporated by reference in the Post-Effective Amendment to the
Registration Statement. We also consent to the reference to our Firm under the
heading "Financial Highlights" in the Prospectus and under the heading "Counsel
and Independent Accountants" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SHORT U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 110356151
<INVESTMENTS-AT-VALUE> 113166664
<RECEIVABLES> 1635274
<ASSETS-OTHER> 5694
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114807632
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 567154
<TOTAL-LIABILITIES> 567154
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118480506
<SHARES-COMMON-STOCK> 10711884
<SHARES-COMMON-PRIOR> 10629764
<ACCUMULATED-NII-CURRENT> 6406087
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7050541)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2810513
<NET-ASSETS> 114240478
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6952312
<OTHER-INCOME> 0
<EXPENSES-NET> 546225
<NET-INVESTMENT-INCOME> 6406087
<REALIZED-GAINS-CURRENT> 410614
<APPREC-INCREASE-CURRENT> 859220
<NET-CHANGE-FROM-OPS> 7675921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6406087)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 3349648
<NUMBER-OF-SHARES-REDEEMED> 3688922
<SHARES-REINVESTED> 401904
<NET-CHANGE-IN-ASSETS> 1936786
<ACCUMULATED-NII-PRIOR> 8100472
<ACCUMULATED-GAINS-PRIOR> (11641037)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 274793
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 546225
<AVERAGE-NET-ASSETS> 109917379
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .6144
<PER-SHARE-GAIN-APPREC> .1100
<PER-SHARE-DIVIDEND> (.6144)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> .5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 58,414,523
<INVESTMENTS-AT-VALUE> 58,414,523
<RECEIVABLES> 281,240
<ASSETS-OTHER> 3,335
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,699,098
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 254,332
<TOTAL-LIABILITIES> 254,332
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,444,005
<SHARES-COMMON-STOCK> 58,441,611
<SHARES-COMMON-PRIOR> 51,215,034
<ACCUMULATED-NII-CURRENT> 3,069,291
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 761
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 58,444,766
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,216,498
<OTHER-INCOME> 0
<EXPENSES-NET> 147,207
<NET-INVESTMENT-INCOME> 3,069,291
<REALIZED-GAINS-CURRENT> 3,155
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,072,446
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,072,446)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 579,105,309
<NUMBER-OF-SHARES-REDEEMED> 571,275,124
<SHARES-REINVESTED> 2,507,356
<NET-CHANGE-IN-ASSETS> 10,340,696
<ACCUMULATED-NII-PRIOR> 2,846,374
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 88,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 235,407
<AVERAGE-NET-ASSETS> 58,800,318
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .0523
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.0523)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> US GOV. MORTGAGE SECURITIES PORTFOLIO
<CURRENCY>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<EXCHANGE-RATE> 1,000
<INVESTMENTS-AT-COST> 77,437,959
<INVESTMENTS-AT-VALUE> 80,162,076
<RECEIVABLES> 423,325
<ASSETS-OTHER> 4,085
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,589,486
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 415,810
<TOTAL-LIABILITIES> 415,810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,142,415
<SHARES-COMMON-STOCK> 7,470,078
<SHARES-COMMON-PRIOR> 6,845,952
<ACCUMULATED-NII-CURRENT> 4,476,426
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,692,856)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,724,117
<NET-ASSETS> 80,173,676
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,840,484
<OTHER-INCOME> 0
<EXPENSES-NET> 364,058
<NET-INVESTMENT-INCOME> 4,476,426
<REALIZED-GAINS-CURRENT> 439,413
<APPREC-INCREASE-CURRENT> 98,398
<NET-CHANGE-FROM-OPS> 5,014,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,476,426)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (136,992)
<NUMBER-OF-SHARES-SOLD> 3,609,097
<NUMBER-OF-SHARES-REDEEMED> 1,377,850
<SHARES-REINVESTED> 217,980
<NET-CHANGE-IN-ASSETS> 26,601,554
<ACCUMULATED-NII-PRIOR> 3,842,799
<ACCUMULATED-GAINS-PRIOR> (3,995,277)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,762
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 364,058
<AVERAGE-NET-ASSETS> 69,104,884
<PER-SHARE-NAV-BEGIN> 10.67
<PER-SHARE-NII> .6947
<PER-SHARE-GAIN-APPREC> .0877
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERMEDIATE MORTGAGE SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 97,331,423
<INVESTMENTS-AT-VALUE> 99,387,196
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,138,294
<SHARES-COMMON-STOCK> 10,292,181
<SHARES-COMMON-PRIOR> 9,702,544
<ACCUMULATED-NII-CURRENT> 5,585,457
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,755,641)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,055,773
<NET-ASSETS> 99,438,426
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,029,212
<OTHER-INCOME> 0
<EXPENSES-NET> 443,755
<NET-INVESTMENT-INCOME> 5,585,457
<REALIZED-GAINS-CURRENT> 545,001
<APPREC-INCREASE-CURRENT> 97,888
<NET-CHANGE-FROM-OPS> 6,228,346
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,585,457)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (297,387)
<NUMBER-OF-SHARES-SOLD> 2,703,534
<NUMBER-OF-SHARES-REDEEMED> 811,362
<SHARES-REINVESTED> 294,785
<NET-CHANGE-IN-ASSETS> 21,456,296
<ACCUMULATED-NII-PRIOR> 5,583,888
<ACCUMULATED-GAINS-PRIOR> (15,026,235)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 317,060
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 534,344
<AVERAGE-NET-ASSETS> 90,588,982
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> .5932
<PER-SHARE-GAIN-APPREC> .0761
<PER-SHARE-DIVIDEND> (.5932)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.0361)
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> 0.49
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> ADJUSTABLE RATE MORTGAGE (ARM) PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 886,939,929
<INVESTMENTS-AT-VALUE> 890,425,942
<RECEIVABLES> 9,334,780
<ASSETS-OTHER> 16,973
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 899,777,695
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<TOTAL-LIABILITIES> 4,227,970
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 919,077,405
<SHARES-COMMON-STOCK> 90,393,447
<SHARES-COMMON-PRIOR> 88,900,793
<ACCUMULATED-NII-CURRENT> 48,173,900
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,013,093)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,486,013
<NET-ASSETS> 895,549,725
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,278,222
<OTHER-INCOME> 0
<EXPENSES-NET> 4,104,322
<NET-INVESTMENT-INCOME> 48,173,900
<REALIZED-GAINS-CURRENT> (1,301,927)
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<NET-CHANGE-FROM-OPS> 40,899,532
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<DISTRIBUTIONS-OF-INCOME> (48,173,900)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44,393,930
<NUMBER-OF-SHARES-REDEEMED> 32,108,808
<SHARES-REINVESTED> 2,901,025
<NET-CHANGE-IN-ASSETS> 144,215,521
<ACCUMULATED-NII-PRIOR> 43,701,797
<ACCUMULATED-GAINS-PRIOR> (25,711,766)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 3,800,480
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,637,975
<AVERAGE-NET-ASSETS> 844,551,058
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .5676
<PER-SHARE-GAIN-APPREC> (.0800)
<PER-SHARE-DIVIDEND> (.5676)
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
