SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. ----
Post-Effective Amendment No. 31
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 31
----
(Check appropriate box or boxes.)
MIDWEST STRATEGIC TRUST
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(Exact name of Registrant as Specified in Charter)
FILE NOS. 811-3651 and 2-80859
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312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 629-2000
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Robert H. Leshner, 312 Walnut Street, 21st Floor,
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Cincinnati, Ohio 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of securities under
Rule 24f-2 by filing Registrant's initial registration statement
effective April 14, 1983. Pursuant to paragraph (b)(1) of Rule
24f-2, Registrant filed a Rule 24f-2 Notice for the fiscal year
ended March 31, 1996 on May 28, 1996.
TOTAL NUMBER OF PAGES:
EXHIBIT INDEX ON PAGE:
MIDWEST STRATEGIC TRUST
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FORM N-1A
CROSS REFERENCE SHEET
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ITEM SECTION IN PROSPECTUS
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1........................... Cover Page
2........................... Expense Information
3........................... Financial Highlights, Performance
Information
4........................... Operation of the Funds, Investment
Objectives and Policies
5........................... Operation of the Funds, Financial
Highlights
6........................... Cover Page, Dividends and Distributions,
Taxes, Operation of the Funds
7........................... How to Purchase Shares, Shareholder
Services, Exchange Privilege, Operation
of the Funds, Calculation of Share
Price and Public Offering Price,
Distribution Plan(s), Application
8........................... How to Redeem Shares, Shareholder
Services
9........................... None
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
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10.......................... Cover Page
11.......................... Table of Contents
12.......................... The Trust
13.......................... Definitions, Policies and Risk
Considerations, Investment Limitations,
Portfolio Turnover
14.......................... Trustees and Officers
15.......................... Principal Security Holders
16.......................... The Investment Adviser and Underwriter,
Distribution Plans, Custodian,
Auditors, MGF Service Corp.
17.......................... Securities Transactions
18.......................... The Trust
19.......................... Calculation of Share Price and Public
Offering Price, Other Purchase
Information, Redemption in Kind
20.......................... Taxes
21.......................... The Investment Adviser and Underwriter
22.......................... Historical Performance Information
23.......................... Annual Report
PROSPECTUS
August 1, 1996
MIDWEST STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
U.S. GOVERNMENT SECURITIES FUND
TREASURY TOTAL RETURN FUND
The U.S. Government Securities Fund and the Treasury Total Return Fund
(individually a "Fund" and collectively the "Funds") are two separate series of
Midwest Strategic Trust.
The U.S. GOVERNMENT SECURITIES FUND seeks high current income,
consistent with the protection of capital, by investing primarily in obligations
issued or guaranteed as to principal and interest by the United States
Government, its agencies or instrumentalities (U.S. Government obligations). It
is anticipated that the Fund will invest primarily in mortgage-related
securities issued or guaranteed by the Government National Mortgage Association,
the Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association.
The TREASURY TOTAL RETURN FUND seeks the highest level of total return
over the long term, consistent with the protection of capital, by investing
primarily in direct obligations of the United States Treasury. High current
income is a secondary objective. The maturities of the U.S. Treasury obligations
in which the Fund invests will be allocated based upon interest rate trends
projected by the Adviser.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
Midwest Group Financial Services, Inc. (the "Adviser") manages the
Funds' investments and their business affairs.
This Prospectus sets forth concisely the information about the Funds
that you should know before investing. Please retain this Prospectus for
future reference. A Statement of Additional Information dated August 1,
1996 has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference in its entirety. A copy of the
Statement of Additional Information can be obtained at no charge by calling one
of the numbers listed below.
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For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . . . 800-543-0407
Cincinnati . . . . . . . . . . . . . . . . . . . . . . . 513-629-2050
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
U.S. Government Treasury
Shareholder Transaction Expenses Securities Total Return
Fund Fund
---------------- ------------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......... 2% 4%
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price). None* None*
Sales Load Imposed on Reinvested Dividends... None None
Exchange Fee................................. None None
Redemption Fee............................... None** None**
* Purchases at net asset value of amounts totaling $1 million or more may
be subject to a contingent deferred sales load if a redemption occurred
within 12 months of purchase and a commission was paid by the Adviser
to a participating unaffiliated dealer. The contingent deferred sales
load is equal to .50% of the value of U.S. Government Securities Fund
shares subject to the load and .75% of the value of Treasury Total
Return Fund shares subject to the load.
** A wire transfer fee is charged by the Funds' Custodian in the case of
redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
U.S. Government Treasury
Securities Total Return
Fund Fund
--------------- -----------
Management Fees After Waivers(A) .71% .58%
12b-1 Fees(B) .01% .01%
Other Expenses .48% .66%
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Total Fund Operating Expenses
After Waivers(C) 1.20% 1.25%
===== =====
(A) Absent waivers of management fees, such fees would have been .75% for
the fiscal year ended March 31, 1996.
(B) Each Fund may incur 12b-1 fees in an amount up to .25% of its average
net assets. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales loads permitted by the
National Association of Securities Dealers.
(C) Absent waivers of management fees, total Fund operating expenses
would have been 1.24% and 1.42% for the U.S. Government Securities
Fund and the Treasury Total Return Fund, respectively, for the fiscal
year ended March 31, 1996.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred during the most recent fiscal year. THE EXAMPLE BELOW SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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<PAGE>
Example
You would pay the following U.S.
expenses on a $1,000 Government Treasury
investment, assuming (1) Securities Total Return
5% annual return and (2) Fund Fund
redemption at the end of
each time period: 1 Year $ 32 $ 52
3 Years 57 78
5 Years 85 106
10 Years 163 185
FINANCIAL HIGHLIGHTS
The following information, which has been audited by Arthur Andersen LLP, is
an integral part of the audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of March
31, 1996 and related auditors' report appear in the Statement of Additional
Information of the Funds, which can be obtained by shareholders at no charge by
calling MGF Service Corp. (Nationwide call toll-free 800-543-0407, in Cincinnati
call 629-2050) or by writing to the Trust at the address on the front of this
Prospectus.
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
Per Share Data for a Share Outstanding Throughout Each Year
Year Ended March 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of year ............. $9.22 $ 9.85 $10.47 $10.18 $10.04 $ 9.78 $ 9.81 $10.17 $10.76 $10.88
------ ------- ------- ------- ------- ------- ------- ------- ------ -------
Income from investment operations:
Net investment income......... 0.56 0.58 0.64 0.69 0.79 0.81 0.86 0.82 0.84 0.88
Net realized and unrealized
gains (losses) on investments 0.21 (0.59) (0.59) 0.47 0.14 0.26 (0.03) (0.33) (0.56) --
------ ------- ------- ------- ------- ------- ------- ------- ------ -------
Total from investment operations 0.77 (0.01) 0.05 1.16 0.93 1.07 0.83 0.49 0.28 0.88
------ ------- ------- ------- ------- ------- ------- ------- ------ -------
Less distributions:
Dividends from net
investment income ............ (0.56) (0.58) (0.64) (0.69) (0.79) (0.81) (0.86) (0.82) (0.84) (0.88)
Distributions from
net realized gains ........... -- (0.04) (0.03) (0.18) -- -- -- (0.03) (0.03) (0.12)
----- ------- ------- ------- ------- ------- ------- ------- ------ -------
Total distributions............. (0.56) (0.62) (0.67) (0.87) (0.79) (0.81) (0.86) (0.85) (0.87) (1.00)
------ ------- ------- ------- ------- ------- ------- ------- ------ -------
Net asset value at end of year.. $9.43 $ 9.22 $ 9.85 $10.47 $10.18 $10.04 $ 9.78 $ 9.81 $10.17 $10.76
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Total return(A) ................ 8.39% 0.06% 0.30% 11.71% 9.46% 11.37% 8.60% 4.96% 2.95% 8.62%
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Net assets at end of year (000's) $24,916 $26,174 $40,479 $31,633 $40,253 $43,753 $28,788 $31,047 $40,429 $54,657
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Ratio of expenses to
average net assets ........... 1.20%(B) 1.20% 1.20% 1.20% 1.19% 1.30% 1.31%(B) 1.37% 1.60% 1.25%(B)
Ratio of net investment income
to average net assets......... 5.82% 6.26% 6.14% 6.61% 7.73% 8.19% 8.60% 8.15% 8.31% 8.23%
Portfolio turnover rate......... 160% 205% 246% 188% 55% 53% 128% 140% 94% 93%
<FN>
(A)The total returns shown do not include the effect of applicable sales loads.
(B)Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.24%, 1.34% and 1.32% for the years ended March
31, 1996, 1990 and 1987, respectively.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
Per Share Data for a Share Outstanding Throughout Each Period
From Date
of Public
Offering
(Jan. 26.,
1988)
Year Ended March 31, Through
-------------------------------------------------------------------- March 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period. $8.36 $ 8.95 $ 9.70 $ 9.10 $ 9.00 $ 8.78 $ 8.98 $ 9.25 $ 9.60
-------- -------- -------- -------- ------- ----------------- -------- ------
Income from investment operations:
Net investment income................ 0.38 0.43 0.37 0.55 0.60 0.61 0.63 0.58 0.09
Net realized and unrealized gains
(losses) on investments............... (0.14) (0.59) (0.39) 0.87 0.17 0.22 (0.20) (0.27) (0.35)
------ -------- -------- -------- --------- ------- -------- -------- --------
Total from investment operations....... 0.24 (0.16) (0.02) 1.42 0.77 0.83 0.43 0.31 (0.26)
------- -------- -------- ------- --------- ------- -------- -------- --------
Less distributions:
Dividends from net investment
income(A) (0.38) (0.43) (0.37) (0.55) (0.60) (0.61) (0.63) (0.58) (0.09)
Distributions from net
realized gains(A) -- -- (0.36) (0.27) (0.07) -- -- -- --
------- ------- -------- ------- -------- ------- -------- -------- -------
Total distributions.................... (0.38) (0.43) (0.73) (0.82) (0.67) (0.61) (0.63) (0.58) (0.09)
------- -------- -------- ------- -------- ------- -------- -------- --------
Net asset value at end of period....... $8.22 $ 8.36 $ 8.95 $ 9.70 $ 9.10 $ 9.00 $ 8.78 $ 8.98 $ 9.25
======== ======= ======= ======== ======== ======= ======== ======== ========
Total return(B) ....................... 2.95% (1.75%) (0.54%) 16.21% 8.98% 9.95% 4.71% 3.16% (16.59%)(D)
====== ======= ======== ======== ======== ======= ======== ======= ========
Net assets at end of period (000's).... $15,344 $25,974 $32,190 $ 43,427 $49,071 $65,326 $ 76,818 $ 69,253 $ 19,186
======= ======== ======== ======== ======== ======= ======== ======== ========
Ratio of expenses to average net assets 1.25%(C) 1.25%(C) 1.25% 1.25% 1.25% 1.21% 1.17% 1.23% 1.59%(D)
Ratio of net investment income
to average net assets............... 4.66% 5.06% 3.84% 5.82% 6.58% 6.96% 6.86% 6.51% 5.28%(D)
Portfolio turnover rate................ 0% 63% 526% 161% 130% 198% 111% 588% 0%
<FN>
(A)For the periods ended prior to March 31, 1993, the per share data was
calculated using average shares outstanding throughout each period, whereas
for the years ended March 31, 1993 and thereafter, the per share data was
calculated based upon actual distributions. Actual distributions per share
based upon the actual number of shares outstanding on the ex-dividend dates of
distributions amounted to $.61, $.62, $.63, $.54 and $.05 from net investment
income for the periods ended March 31, 1992, 1991, 1990, 1989 and 1988,
respectively, and $.08 from net realized gains for the year ended
March 31, 1992.
(B)The total returns shown do not include the effect of applicable sales loads.
(C)Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.42% and 1.37% for the years ended March 31, 1996
and 1995, respectively.
(D)Annualized.
</FN>
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The U.S. Government Securities Fund and the Treasury Total Return Fund
are two series of Midwest Strategic Trust (the "Trust"), each with its own
portfolio and investment objective(s). Neither Fund is intended to be a complete
investment program, and there is no assurance that the investment objectives of
either Fund can be achieved. Each Fund's investment objectives may be changed by
the Board of Trustees without shareholder approval, but only after notification
has been given to shareholders and after this Prospectus has been revised
accordingly. If there is a change in a Fund's investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. Unless otherwise indicated, all
investment practices and limitations of the Funds are nonfundamental policies
which may be changed by the Board of Trustees without shareholder approval.
U.S. GOVERNMENT SECURITIES FUND
The U.S. Government Securities Fund seeks high current income,
consistent with the protection of capital. The Fund seeks to achieve its
investment objective by investing primarily in obligations issued or guaranteed
as to principal and interest by the United States Government, its agencies or
instrumentalities ("U.S. Government obligations" described below). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in U.S.
Government obligations. It is anticipated that the assets of the Fund will be
invested principally in mortgage-related securities issued or guaranteed as to
principal and interest by the Government National Mortgage Association (GNMA
Certificates), the Federal Home Loan Mortgage Corporation (FHLMC Certificates)
or the Federal National Mortgage Association (FNMA Certificates). GNMA
Certificates, FHLMC Certificates, FNMA Certificates and other mortgage-related
securities eligible for purchase by the Fund are described below.
Mortgage-related securities purchased by the Fund will be either (i) issued by
United States Government sponsored corporations or (ii) rated Aaa by Moody's
Investors Service, Inc. or AAA by Standard & Poor's Ratings Group or, if not
rated, are of comparable quality as determined by the Adviser.
The market value of investments available to the Fund, and therefore
the Fund's yield and net asset value, will fluctuate due to changes in interest
rates, economic conditions, quality ratings and other factors beyond the control
of the Adviser. Mortgage-related securities and other debt securities are
subject to price fluctuations based upon changes in the level of interest rates,
which will generally result in all those securities
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<PAGE>
changing in price in the same way, i.e., all those securities experiencing
appreciation when interest rates decline and depreciation when interest rates
rise. In addition, the prepayment experience of the mortgages underlying
mortgage-related securities may affect the value of, and the return on an
investment in, such securities.
For defensive purposes, the Fund may temporarily hold all or a portion
of its assets in short-term obligations such as bank debt instruments
(certificates of deposit, bankers' acceptances and time deposits), commercial
paper or repurchase agreements collateralized by U.S. Government obligations.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities include
GNMA Certificates, FHLMC Certificates, FNMA Certificates and collateralized
mortgage obligations ("CMOs").
GNMA Certificates are U.S. Government obligations guaranteed by the
Government National Mortgage Association (the GNMA) and are mortgage-backed
securities representing part ownership of a pool of mortgage loans. The pool of
mortgage loans underlying the GNMA Certificates is assembled by the issuer,
usually a private mortgage lender. The loans in the pool, issued by lenders such
as mortgage bankers, commercial banks and savings and loan associations, are
either insured by the Federal Housing Administration or the Farmers' Home
Administration or guaranteed by the Veterans Administration. If the pool is
approved by the GNMA, GNMA Certificates are issued and sold to investors such as
the Fund. The Fund will invest only in GNMA Certificates of the pass-through
type. This type of GNMA Certificate entitles the holder to receive all interest
and principal payments owed on the pool of mortgage loans, net of fees paid to
the issuer and the GNMA. In addition, the timely payment of interest and
principal on this type of GNMA Certificate is guaranteed by the GNMA, even in
the event of the foreclosure of underlying mortgage loans. The GNMA guarantee is
backed by the full faith and credit of the United States. However, shares of the
Fund are not guaranteed or backed by either the GNMA or the United States
Government.
FHLMC Certificates are U.S. Government obligations guaranteed by the
Federal Home Loan Mortgage Corporation (the FHLMC). As with GNMA Certificates,
FHLMC Certificates are pass-through mortgage-backed securities representing part
ownership of a pool of mortgage loans. The FHLMC generally purchases such
mortgage loans from those lenders insured by the Federal Deposit Insurance
Corporation, or Federal Housing Administration mortgagees approved by the
Department of Housing and Urban Development. The securities and guarantees of
the FHLMC are not backed, directly or indirectly, by the full faith and credit
of the United States.
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<PAGE>
FNMA Certificates are U.S. Government obligations guaranteed by the
Federal National Mortgage Association (the FNMA). The FNMA is a U.S. Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. The FNMA
purchases residential mortgages from a list of approved sellers, which include
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks, credit unions and mortgage banks. Pass-through
securities issued by the FNMA are not backed by the full faith and credit of the
United States, although the Secretary of the Treasury of the United States has
discretionary authority to lend the FNMA up to $2.25 billion outstanding at any
time.
CMOs generally are mortgage-backed obligations that separate mortgage
pools into short-term, medium-term and long-term portions. Each CMO receives
interest owed on the pool of mortgage loans, but principal is usually paid first
to the short-term CMOs, then to medium-term CMOs and then to long-term CMOs.
CMOs usually are issued by investment bankers, the FNMA, and home builders. The
Fund will invest in CMOs which are collateralized by pass-through
mortgage-backed securities issued by the GNMA, the FNMA and the FHLMC, or any
combination thereof. The CMOs in which the Fund invests will evidence interests
in pools of mortgage loans secured by first liens on 1-4 family residential
properties.
Investments in CMOs are subject to the same risks as direct investments
in the underlying mortgage-related securities, including the risks described
below with respect to prepayments of and payments on foreclosures of underlying
mortgage loans. In addition, in the event of a bankruptcy or other default of
the broker or agency issuing the CMO, the Fund could experience both delays in
liquidating its position and losses. The Fund will not invest more than 10% of
its net assets in CMOs for which there is no established market and other
illiquid securities. In addition, pursuant to the position of the staff of the
Securities and Exchange Commission, the Fund will not invest more than 5% of its
total assets in any CMO which is an investment company under the Investment
Company Act of 1940 and will not invest more than 10% of its total assets in all
such CMOs and securities of other investment companies.
The Fund may also invest in stripped mortgage-related securities, which
are derivative multiclass mortgage securities issued by agencies or
instrumentalities of the United States Government, or by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. Stripped mortgage-related
- 8 -
<PAGE>
securities are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of stripped mortgage-backed security will have one class
receiving all of the interest from the mortgage assets (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the securities' yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities even if the security is rated AAA or Aaa, and could even lose its
entire investment. Although stripped mortgage-related securities are purchased
and sold by institutional investors through several investment banking firms
acting as brokers or dealers, these securities were only recently developed. As
a result, established trading markets have not yet developed for certain
stripped mortgage-related securities. The Fund will not invest more than 10% of
its net assets in stripped mortgage-backed securities for which there is no
established market and other illiquid securities. The Fund may invest more than
10% of its net assets in stripped mortgage-related securities deemed to be
liquid if the Adviser determines, under the direction of the Board of Trustees,
that the security can be disposed of promptly in the ordinary course of business
at a value reasonably close to that used in the calculation of the Fund's net
asset value per share.
Prepayments of and payments on foreclosures of mortgage loans
underlying a mortgage-related security are passed through to the registered
holder with the regular monthly payments of principal and interest, and have the
effect of reducing future payments. The mortgage loans underlying a
mortgage-related security may be prepaid at any time without penalty. If a
prepayment of a mortgage loan underlying a particular mortgage-related security
occurs, the return to the Fund may be lower if the Fund acquired the security at
a premium over par or higher if the Fund acquired the security at a discount
from par. In addition, prepayments of mortgage loans underlying a particular
mortgage-related security held by the Fund will reduce the market value of the
security to the extent the market value of the security at the time of
prepayment exceeds its par value. In periods of declining mortgage interest
rates, prepayments may occur with increasing frequency because, among other
reasons, mortgagors may be able to refinance outstanding mortgages at lower
interest rates. In general, a decline in interest rates will cause the net asset
value of the Fund to increase to the extent that prepayments do not occur, while
a rise in interest rates will cause the net asset value of the Fund to decrease.
- 9 -
<PAGE>
Some of the pass-through mortgage securities in which the Fund invests
may be adjustable rate mortgage securities ("ARMS"). ARMS are collateralized by
adjustable rather than fixed-rate mortgages. The ARMS in which the Fund invests
are actively traded. Generally, adjustable rate mortgages have a specified
maturity date and amortize principal over their life. In periods of declining
interest rates there is a reasonable likelihood that ARMS will experience
increased rates of prepayment of principal. However, the major difference
between ARMS and fixed-rate mortgage securities is that the interest rate can
and does change in accordance with movements in a particular, pre-specified,
published interest rate index. There are two main categories of indices: those
based on U.S. Treasury obligations and those derived from a calculated measure,
such as a cost of funds index or a moving average of mortgage rates. The amount
of interest on an adjustable rate mortgage is calculated by adding a specified
amount to the applicable index, subject to limitations on the maximum and
minimum interest that is charged during the life of the mortgage or to maximum
and minimum changes to that interest rate during a given period. Because the
interest rate on ARMS generally moves in the same direction as market interest
rates, the market value of ARMS tends to be more stable than that of fixed-rate
mortgage securities and ARMS tend to experience lower rates of prepayment of
principal than fixed-rate mortgage securities. However, ARMS are also less
likely than fixed-rate mortgage securities of comparable quality and maturity to
increase significantly in value during periods of declining interest rates.
TREASURY TOTAL RETURN FUND
The Treasury Total Return Fund seeks the highest level of total return
over the long term, consistent with the protection of capital. High current
income is a secondary objective. The Fund seeks to achieve its investment
objectives by investing primarily in direct obligations of the United States
Treasury ("U.S. Treasury obligations" described below). Under normal
circumstances, at least 65% of the Fund's total assets will be invested in U.S.
Treasury obligations. It is anticipated that the remainder of the Fund's assets
will be invested in repurchase agreements collateralized by U.S. Treasury
obligations. Although the Fund will normally limit its investment in repurchase
agreements to 35% of its total assets, the Fund may, for temporary defensive
purposes, invest up to 50% of its assets in repurchase agreements. For a
discussion of repurchase agreements, see "Additional Investment Information."
In pursuing the Fund's investment objectives, the Adviser will actively
manage the Fund's portfolio in light of market conditions and trends. When in
the opinion of the Adviser,
- 10 -
<PAGE>
market indicators point to lower interest rates, the average maturity of the
Fund's portfolio will be lengthened to take advantage of the anticipated
increase in bond prices. When rising interest rates are indicated, the average
maturity of the portfolio will be shortened to protect the Fund against the
anticipated decrease in bond prices.
In order to interpret the trend in interest rates, the Adviser uses a
composite indicator with different subvariables, each of which is in some way
reflective of the overall strength of the economy. Any reversal in the interest
rate trend projected by this indicator mandates a dramatic shift in the
allocation of the maturities of the Fund's portfolio holdings. If the indicator
projects falling interest rates, the Adviser will convert 50% to 100% of the
Fund's portfolio to long-term U.S. Treasury obligations. Conversely, if the
indicator projects higher interest rates, the Adviser will convert 50% to 100%
of the Fund's portfolio to short-term U.S. Treasury obligations. Depending on
market conditions, the Adviser may invest up to 100% of the Fund's portfolio in
obligations of the same maturity.
The Adviser anticipates that this technique will enable the Fund to (1)
capture the capital appreciation generated by long-term U.S. Treasury
obligations during periods of falling interest rates and (2) protect these gains
by shifting portfolio assets to short-term U.S. Treasury obligations during
periods of rising interest rates.
The U.S. Treasury obligations in which the Fund may invest include
direct obligations of the United States Treasury such as Treasury bills,
Treasury notes and Treasury bonds. U.S. Treasury obligations are backed by the
"full faith and credit" of the United States Government. However, shares of the
Fund are not guaranteed or backed by the United States Government. The Fund may
invest up to 20% of its net assets in U.S. Treasury obligations traded under the
Separate Trading of Registered Interest and Principal of Securities ("STRIPS")
program. The Fund may invest in U.S. Treasury obligations of any maturity.
The market value of investments available to the Fund, and therefore
the Fund's yield and net asset value, will fluctuate due to changes in interest
rates, economic conditions, quality ratings and other factors beyond the control
of the Adviser. U.S. Treasury obligations are subject to price fluctuations
based upon changes in the level of interest rates, which will generally result
in all those securities changing in price in the same way, i.e., all those
securities experiencing appreciation when interest rates decline and
depreciation when interest rates rise. In addition, securities with longer
maturities generally offer both higher yields and greater exposure to market
fluctuation
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<PAGE>
from changes in interest rates. Consequently, to the extent the Fund is
significantly invested in U.S. Treasury obligations with longer maturities,
investors in the Fund should be aware that there is a possibility of greater
fluctuation in the Fund's net asset value.
Because a substantial portion of the Fund's portfolio securities may be
sold when the Adviser believes that market indicators point to a change in the
level of interest rates, the Fund may experience a very substantial portfolio
turnover rate.
ADDITIONAL INVESTMENT INFORMATION
U.S. GOVERNMENT OBLIGATIONS. "U.S. Government obligations" include
securities which are issued or guaranteed by the United States Treasury, by
various agencies of the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government. U.S. Treasury obligations are backed by the "full faith and credit"
of the United States Government. U.S. Treasury obligations include Treasury
bills, Treasury notes, and Treasury bonds. U.S. Treasury obligations also
include the separate principal and interest components of U.S. Treasury
obligations which are traded under the Separate Trading of Registered Interest
and Principal of Securities ("STRIPS") program. Agencies or instrumentalities
established by the United States Government include the Federal Home Loan Banks,
the Federal Land Bank, the GNMA, the FNMA, the FHLMC, the Student Loan Marketing
Association, the Small Business Administration, the Bank for Cooperatives, the
Federal Intermediate Credit Bank, the Federal Financing Bank, the Federal Farm
Credit Banks, the Federal Agricultural Mortgage Corporation, the Resolution
Funding Corporation, the Financing Corporation of America and the Tennessee
Valley Authority. Some of these securities are supported by the full faith and
credit of the United States Government while others are supported only by the
credit of the agency or instrumentality, which may include the right of the
issuer to borrow from the United States Treasury. In the case of securities not
backed by the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States in
the event the agency or instrumentality does not meet its commitments. Shares of
the Funds are not guaranteed or backed by the United States Government.
DELAYED SETTLEMENT TRANSACTIONS. Each Fund may trade securities
on a "when-issued" or "to-be-announced" basis. Obligations issued on a
when-issued or to-be-announced basis are settled by delivery and payment after
the date of the transaction, usually within 15 to 45 days. In a to-be-announced
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<PAGE>
transaction, a Fund has committed to purchasing or selling securities for which
all specific information is not yet known at the time of the trade, particularly
the face amount in transactions involving mortgage-related securities. The Funds
will only make commitments to purchase obligations on a when- issued or
to-be-announced basis with the intention of actually acquiring the obligations,
but a Fund may sell these securities before the settlement date if it is deemed
advisable as a matter of investment strategy or in order to meet its
obligations, although it would not normally expect to do so. The Funds will not
enter into a delayed settlement transaction which settles in more than 120 days.
Purchases of securities on a when-issued or to-be-announced basis are
subject to market fluctuations and their current value is determined in the same
manner as other portfolio securities. When effecting such purchases for a Fund,
a segregated account of cash or U.S. Government obligations of the Fund in an
amount sufficient to make payment for the portfolio securities to be purchased
will be maintained with the Fund's Custodian at the trade date and valued daily
at market for the purpose of determining the adequacy of the securities in the
account. If the market value of segregated securities declines, additional cash
or U.S. Government obligations will be segregated on a daily basis so that the
market value of the Fund's segregated assets will equal the amount of the Fund's
commitments to purchase when- issued obligations and securities on a
to-be-announced basis. A Fund's purchase of securities on a when-issued or
to-be-announced basis may increase its overall investment exposure and involves
a risk of loss if the value of the securities declines prior to the settlement
date or if the broker-dealer selling the securities fails to deliver after the
value of the securities has risen.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
Repurchase agreements are transactions by which a Fund purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
time and price, thereby determining the yield during the term of the agreement.
In the event of a bankruptcy or other default of the seller of a repurchase
agreement, a Fund could experience both delays in liquidating the underlying
security and losses. To minimize these possibilities, each Fund intends to enter
into repurchase agreements only with its Custodian, banks having assets in
excess of $10 billion and the largest and, in the Board of Trustees' judgment,
most creditworthy primary U.S. Government securities dealers. Each Fund will
enter into repurchase agreements which are collateralized by U.S. Government
obligations in which that Fund could invest directly. Collateral for repurchase
agreements is held in safekeeping in the customer-only account of the Funds'
Custodian at the Federal Reserve Bank. At the time a Fund enters
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<PAGE>
into a repurchase agreement, the value of the collateral, including accrued
interest, will equal or exceed the value of the repurchase agreement and, in the
case of a repurchase agreement exceeding one day, the seller agrees to maintain
sufficient collateral so the value of the underlying collateral, including
accrued interest, will at all times equal or exceed the value of the repurchase
agreement. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 10% of the value of the net
assets of the Fund would be invested in such securities and other illiquid
securities.
BORROWING AND PLEDGING. Each Fund may borrow money from banks or other
persons. Borrowing magnifies the potential for gain or loss on the portfolio
securities of the Funds and, therefore, if employed, increases the possibility
of fluctuation in a Fund's net asset value. This is the speculative factor known
as leverage. To reduce the risks of borrowing, the Funds will limit their
borrowings as described below. Each Fund's policies on borrowing and pledging
are fundamental policies which may not be changed without the affirmative vote
of a majority of its outstanding shares.
The U.S. Government Securities Fund may borrow money in an amount not
exceeding 10% of total assets as a temporary measure for extraordinary or
emergency purposes and may pledge assets in connection with borrowings, but will
not pledge more than 10% of its total assets. The Fund will not make any
additional purchases of portfolio securities if outstanding borrowings exceed 5%
of the value of its total assets. These policies do not preclude the U.S.
Government Securities Fund from entering into reverse repurchase transactions
(see below), provided that the Fund has asset coverage of 300% of all its
reverse repurchase commitments pursuant to such transactions and all other
outstanding borrowings of the Fund. Borrowings of the Fund, including its
current obligations under reverse repurchase agreements, will not exceed
one-third of the current market value of the Fund's total assets (less all its
liabilities other than obligations under reverse repurchase agreements and other
borrowings).
The Treasury Total Return Fund may borrow money from banks (provided
there is 300% asset coverage) or from banks or other persons for temporary
purposes (in an amount not exceeding 5% of its total assets). The Fund will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets. The Fund may pledge assets in
connection with borrowings but will not pledge more than one-third of its total
assets. The Fund will not make any additional purchases of portfolio securities
if outstanding borrowings exceed 5% of the value of its total assets.
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<PAGE>
REVERSE REPURCHASE TRANSACTIONS. The U.S. Government Securities Fund
may enter into reverse repurchase transactions. A reverse repurchase transaction
involves the sale of a money market instrument held by the Fund coupled with an
agreement by the Fund to repurchase the instrument at a stated price, date and
interest payment. The Fund will use the proceeds of a reverse repurchase
transaction to purchase other money market instruments which either mature at a
date simultaneous with or prior to the expiration of the reverse repurchase
agreement or which are held under an agreement to resell maturing as of that
time.
The Fund will enter into a reverse repurchase transaction only when the
interest income to be earned from the investment of the proceeds of the
transaction is greater than the interest expense of the transaction. Under the
Investment Company Act of 1940, reverse repurchase transactions may be
considered to be borrowings by the seller. The Fund may not enter into a reverse
repurchase transaction if, as a result, its current obligations under such
agreements and all of its other outstanding borrowings would exceed one-third of
the current market value of the Fund's total assets (less all its liabilities
other than obligations under such agreements and other borrowings). The Fund may
enter into reverse repurchase transactions with banks or broker-dealers. Entry
into such transactions requires the creation and maintenance of a segregated
account with the Fund's Custodian consisting of cash and/or U.S. Government
obligations.
LENDING PORTFOLIO SECURITIES. The Treasury Total Return Fund may make
short-term loans of its portfolio securities to banks, brokers and dealers.
Lending portfolio securities exposes the Fund to the risk that the borrower may
fail to return the loaned securities or may not be able to provide additional
collateral or that the Fund may experience delays in recovery of the loaned
securities or loss of rights in the collateral if the borrower fails
financially. To minimize these risks, the borrower must agree to maintain
collateral marked to market daily, in the form of cash and/or U.S. Government
obligations, with the Fund's Custodian in an amount at least equal to the market
value of the loaned securities. Although the Fund does have the ability to make
loans of all of its portfolio securities, it is the present intention of the
Fund, which may be changed without shareholder approval, to limit the amount of
loans of portfolio securities to no more than 25% of its net assets.
PORTFOLIO TURNOVER. The Funds do not intend to use short-term trading
as a primary means of achieving their investment objectives. However, each
Fund's rate of portfolio turnover will depend upon market and other conditions,
and it will not be a limiting factor when portfolio changes are deemed necessary
or
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<PAGE>
appropriate by the Adviser. The portfolio turnover of the Funds may be greater
than that of many other mutual funds. High turnover involves correspondingly
greater commission expenses and transaction costs and increases the possibility
that the Funds would not qualify as regulated investment companies under
Subchapter M of the Internal Revenue Code. A Fund will not qualify as a
regulated investment company if it derives 30% or more of its gross income from
gains (without offset for losses) from the sale or other disposition of
securities held for less than three months. High turnover may result in a Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to its
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
Your initial investment in either Fund ordinarily must be at least
$1,000 ($250 for tax-deferred retirement plans). You may purchase additional
shares through the Open Account Program described below. You may open an account
and make an initial investment through securities dealers having a sales
agreement with the Trust's principal underwriter, Midwest Group Financial
Services, Inc. (the "Adviser"). You may also make a direct initial investment by
sending a check and a completed account application form to MGF Service Corp.,
P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the
"U.S. Government Securities Fund" or the "Treasury Total Return Fund," whichever
is applicable. An account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of
Fund shares. Certificates representing shares are not ordinarily issued, but you
may receive a certificate without charge by sending a written request to MGF
Service Corp. Certificates for fractional shares will not be issued. If a
certificate has been issued to you, you will not be permitted to exchange shares
by telephone or to use the automatic withdrawal plan as to those shares. The
Trust and the Adviser reserve the rights to limit the amount of investments and
to refuse to sell to any person.
Investors should be aware that the Funds' account application contains
provisions in favor of the Trust, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.
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<PAGE>
Should an order to purchase shares be canceled because your check does
not clear, you will be responsible for any resulting losses or fees incurred by
the Trust or MGF Service Corp. in the transaction.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning
the services described in this section to MGF Service Corp. at
the address or numbers listed below.
After an initial investment, all investors are considered participants
in the Open Account Program. The Open Account Program helps investors make
purchases of shares of the Funds over a period of years and permits the
automatic reinvestment of dividends and distributions of the Funds in additional
shares without a sales load.
Under the Open Account Program, you may purchase and add shares to your
account at any time either through your securities dealer or by sending a check
to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. The check
should be made payable to the applicable Fund.
Under the Open Account Program, you may also purchase shares of the
Funds by bank wire. Please telephone MGF Service Corp. (Nationwide call
toll-free 800-543-0407; in Cincinnati call 629- 2050) for instructions. Your
bank may impose a charge for sending your wire. There is presently no fee for
receipt of wired funds, but MGF Service Corp. reserves the right to charge
shareholders for this service upon thirty days' prior notice to shareholders.
Each additional purchase request must contain the name of your account
and your account number to permit proper crediting to your account. While there
is no minimum amount required for subsequent investments, the Trust reserves the
right to impose such requirement. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for selling
shares of the Funds to a current shareholder, such broker-dealer will receive
the concessions described above with respect to additional investments by the
shareholder.
Shares of each Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Adviser by 5:00 p.m., Eastern time, that day
are confirmed at the public offering price determined as of the close of the
regular session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Adviser by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting
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<PAGE>
purchase orders. Direct purchase orders received by MGF Service Corp. by 4:00
p.m., Eastern time, are confirmed at that day's public offering price. Direct
investments received by MGF Service Corp. after 4:00 p.m., Eastern time, and
orders received from dealers after 5:00 p.m., Eastern time, are confirmed at the
public offering price next determined on the following business day.
The public offering price of shares of the U.S. Government Securities
Fund applicable to investors whose accounts are opened after January 31, 1995 is
the next determined net asset value per share plus a sales load as shown in the
following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- -------------------- ------- -------- ------
Less than $100,000 2.00% 2.04% 1.80%
$100,000 but less than $250,000 1.50 1.52 1.35
$250,000 but less than $500,000 1.00 1.01 .90
$500,000 but less than $1,000,000 .75 .76 .65
$1,000,000 or more None* None*
The public offering price of shares of the U.S. Government Securities
Fund applicable to investors whose accounts were opened prior to February 1,
1995 is the next determined net asset value per share plus a sales load as shown
in the following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- ------------------- ------- -------- ---------
Less than $500,000 1.00% 1.01% 1.00%
$500,000 but less than $1,000,000 .75 .76 .75
$1,000,000 or more None* None*
The public offering price of shares of the Treasury Total Return Fund
is the next determined net asset value per share plus a sales load as shown in
the following table.
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<PAGE>
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- -------------------- ------- -------- ------
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but
a contingent deferred sales load may apply if a commission was paid by
the Adviser to a participating unaffiliated dealer and the shares are
redeemed within twelve months from the date of purchase.
Under certain circumstances, the Adviser may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Funds may
be deemed to be underwriters under the Securities Act of 1933. The Adviser
retains the entire sales load on all direct initial investments in the Funds and
on all investments in accounts with no designated dealer of record.
For initial purchases of $1,000,000 or more made after October 1, 1995
and subsequent purchases further increasing the size of the account, a dealer's
commission of .50% of the purchase amount of U.S. Government Securities Fund
shares and .75% of the purchase amount of Treasury Total Return Fund shares may
be paid by the Adviser to participating unaffiliated dealers through whom such
purchases are effected. In determining a dealer's eligibility for such
commission, purchases of shares of the Funds may be aggregated with concurrent
purchases of Class A shares of other Midwest Group funds. Dealers should contact
the Adviser concerning the applicability and calculation of the dealer's
commission in the case of combined purchases. An exchange from other Midwest
Group funds will not qualify for payment of the dealer's commission, unless such
exchange is from a Midwest Group fund with assets as to which a dealer's
commission or similar payment has not been previously paid. Redemptions of
shares may result in the imposition of a contingent deferred sales load if the
dealer's commission described in this paragraph was paid in connection with the
purchase of such shares. See "Contingent Deferred Sales Charge for Certain
Purchases of Shares" below.
In addition to the compensation otherwise paid to securities dealers,
the Adviser may from time to time pay from its own resources additional cash
bonuses or other incentives to selected
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<PAGE>
dealers in connection with the sale of shares of the Funds. On some occasions,
such bonuses or incentives may be conditioned upon the sale of a specified
minimum dollar amount of the shares of the Funds and/or other funds in the
Midwest Group during a specific period of time. Such bonuses or incentives may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and other dealer-sponsored programs or events.
REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing shares of the load funds distributed by the Adviser with
the amount of his current purchases in order to take advantage of the reduced
sales loads set forth in the tables above. Purchases made in any load fund
distributed by the Adviser pursuant to a Letter of Intent may also be eligible
for the reduced sales loads. The minimum initial investment under a Letter of
Intent is $10,000. The load funds currently distributed by the Adviser are
listed in the Exchange Privilege section of this Prospectus. Shareholders should
contact MGF Service Corp. for information about the Right of Accumulation and
Letter of Intent.
PURCHASES AT NET ASSET VALUE. You may purchase shares of either Fund at
net asset value when the payment for your investment represents the proceeds
from the redemption of shares of any other mutual fund which has a front-end
sales load and is not distributed by the Adviser. Your investment will qualify
for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within one year of the
purchase of such shares and no more than sixty days prior to your purchase of
shares of the Funds. To make a purchase at net asset value pursuant to this
provision, you must submit photocopies of the confirmations (or similar
evidence) showing the purchase and redemption of shares of the other fund. Your
payment may be made with the redemption check representing the proceeds of the
shares redeemed, endorsed to the order of the applicable Fund. The redemption of
shares of the other fund is, for federal income tax purposes, a sale on which
you may realize a gain or loss. These provisions may be modified or terminated
at any time. Contact your securities dealer or the Trust for further
information.
Banks, bank trust departments and savings and loan associations, in
their fiduciary capacity or for their own accounts, may also purchase shares of
the Funds at net asset value. To the extent permitted by regulatory authorities,
a bank trust department may charge fees to clients for whose account it
purchases shares at net asset value. Federal and state credit unions may also
purchase shares at net asset value.
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<PAGE>
In addition, shares of the Funds may be purchased at net asset value by
broker-dealers who have a sales agreement with the Adviser, and their registered
personnel and employees, including members of the immediate families of such
registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
shares of the Funds at net asset value if their investment adviser or financial
planner has made arrangements to permit them to do so with the Trust and the
Adviser. The investment adviser or financial planner must notify MGF Service
Corp. that an investment qualifies as a purchase at net asset value.
Trustees, directors, officers and employees of the Trust, the Adviser
or MGF Service Corp., including members of the immediate family of such
individuals and employee benefit plans established by such entities, may also
purchase shares of the Funds at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF SHARES. A
contingent deferred sales load is imposed upon certain redemptions of shares of
the Funds (or shares into which such shares were exchanged) purchased at net
asset value in amounts totaling $1 million or more, if the dealer's commission
described above was paid by the Adviser and the shares are redeemed within
twelve months from the date of purchase. The contingent deferred sales load
imposed on redemptions of shares of the U.S. Government Securities Fund will be
paid to the Adviser and will be equal to .50% of the lesser of (1) the net asset
value at the time of purchase of the shares being redeemed or (2) the net asset
value of such shares at the time of redemption. The contingent deferred sales
load imposed on redemptions of shares of the Treasury Total Return Fund will be
paid to the Adviser and will be equal to .75% of the lesser of (1) the net asset
value at the time of purchase of the shares being redeemed or (2) the net asset
value of such shares at the time of redemption. In determining whether the
contingent deferred sales load is payable, it is assumed that shares not subject
to the contingent deferred sales load are the first redeemed followed by other
shares held for the longest period of time. The contingent deferred sales load
will not be imposed upon shares representing reinvested dividends or capital
gains distributions, or upon amounts representing share appreciation. If a
purchase of shares is subject to the contingent deferred sales load, the
investor will be so notified on the confirmation for such purchase.
Redemptions of such shares of the Funds held for at least 12 months
will not be subject to the contingent deferred sales load and an exchange of
such shares into another Midwest Group fund is
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<PAGE>
not treated as a redemption and will not trigger the imposition of the
contingent deferred sales load at the time of such exchange. A fund will
will "tack" the period for which such shares being exchanged were held onto
the holding period of the acquired shares for the purpose of determining if a
contingent deferred sales load is applicable in the event that the acquired
shares are redeemed following the exchange; however, the period of time that
the redemption proceeds of such shares are held in a money market fund will
not count toward the holding period for determining whether a contingent
deferred sales load is applicable. See "Exchange Privilege."
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Adviser may
require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the applicable
sales load and for purposes of the Letter of Intent and Right of Accumulation
privileges, a purchaser includes an individual, his spouse and their children
under the age of 21, purchasing shares for his or their own account; or a
trustee or other fiduciary purchasing shares for a single fiduciary account
although more than one beneficiary is involved; or employees of a common
employer, provided that economies of scale are realized through remittances from
a single source and quarterly confirmation of such purchases; or an organized
group, provided that the purchases are made through a central administration, or
a single dealer, or by other means which result in economy of sales effort or
expense. Contact MGF Service Corp. for additional information concerning
purchases at net asset value or at reduced sales loads.
SHAREHOLDER SERVICES
Contact MGF Service Corp. (Nationwide call toll-free 800- 543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
Automatic Withdrawal Plan
-------------------------
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional shares of the Funds while the
plan is in effect are generally undesirable because a sales load is incurred
whenever purchases are made.
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<PAGE>
Tax-Deferred Retirement Plans
-----------------------------
Shares of either Fund are available for purchase in connection with the
following tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
--------------------
Shares of either Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Funds.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in either Fund from your
bank, savings and loan or other depository institution account. The minimum
initial and subsequent investments must be $50 under the plan. MGF Service Corp.
pays the costs associated with these transfers, but reserves the right, upon
thirty days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Funds.
Reinvestment Privilege
----------------------
If you have redeemed shares of either Fund, you may reinvest all or
part of the proceeds without any additional sales load. This reinvestment must
occur within ninety days of the redemption and the privilege may only be
exercised once per year.
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<PAGE>
HOW TO REDEEM SHARES
You may redeem shares of either Fund on each day that the Trust is open
for business by sending a written request to MGF Service Corp. The request must
state the number of shares or the dollar amount to be redeemed and your account
number. The request must be signed exactly as your name appears on the Trust's
account records. If the shares to be redeemed have a value of $25,000 or more,
your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and dealers, municipal securities brokers and dealers,
government securities brokers and dealers, credit unions, national securities
exchanges, registered securities associations, clearing agencies and savings
associations.
You may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
If your instructions request a redemption by wire, you will be charged
an $8 processing fee by the Funds' Custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact MGF Service Corp. for more information about ACH
transactions.
If a certificate for the shares was issued, it must be delivered to MGF
Service Corp., or the dealer in the case of a wire redemption, duly endorsed or
accompanied by a duly endorsed stock power, with the signature guaranteed by any
of the eligible guarantor institutions outlined above.
A contingent deferred sales load may apply to a redemption
of certain shares purchased at net asset value. See "How to
Purchase Shares."
- 24 -
<PAGE>
Shares are redeemed at their net asset value per share next determined
after receipt by MGF Service Corp. of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment is
normally made within three business days after tender in such form, provided
that payment in redemption of shares purchased by check will be effected only
after the check has been collected, which may take up to fifteen days from the
purchase date. To eliminate this delay, you may purchase shares of the Funds by
certified check or wire.
The Trust and MGF Service Corp. will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or MGF Service Corp., or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or MGF
Service Corp. do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
At the discretion of the Trust or MGF Service Corp., corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization. The Trust
reserves the right to require you to close your account if at any time the value
of your shares is less than $1,000 (based on actual amounts invested including
any sales load paid, unaffected by market fluctuations), or $250 in the case of
tax-deferred retirement plans, or such other minimum amount as the Trust may
determine from time to time. After notification to you of the Trust's intention
to close your account, you will be given thirty days to increase the value of
your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
- 25 -
<PAGE>
EXCHANGE PRIVILEGE
Shares of either Fund and of any other fund distributed by the Adviser
may be exchanged for each other.
Shares of the Funds which are not subject to a contingent deferred
sales load may be exchanged for Class A shares of any other fund and for shares
of any other fund which offers only one class of shares (provided such shares
are not subject to a contingent deferred sales load). A sales load will be
imposed equal to the excess, if any, of the sales load rate applicable to the
shares being acquired over the sales load rate, if any, previously paid on the
shares being exchanged.
Shares of the Funds subject to a contingent deferred sales load may be
exchanged, on the basis of relative net asset value per share, for shares of any
other fund which imposes a contingent deferred sales load and for shares of any
fund which is a money market fund. A fund will "tack" the period for which the
shares being exchanged were held onto the holding period of the acquired shares
for purposes of determining if a contingent deferred sales load is applicable in
the event that the acquired shares are redeemed following the exchange. The
period of time that shares are held in a money market fund will not count toward
the holding period for determining whether a contingent deferred sales load is
applicable.
The following are the funds of the Midwest Group of Funds currently
offered to the public. Funds which may be subject to a front-end or contingent
deferred sales load are indicated by an asterisk.
Midwest Group Tax Free Trust Midwest Strategic Trust
Tax-Free Money Fund *U.S. Government Securities Fund
Ohio Tax-Free Money Fund *Treasury Total Return Fund
California Tax-Free Money Fund *Equity Fund
Royal Palm Florida Tax-Free *Utility Fund
Money Fund
Michigan Tax-Free Money Fund Midwest Trust
*Tax-Free Intermediate Term Fund Short Term Government Income Fund
*Ohio Insured Tax-Free Fund Institutional Government Income Fund
*Intermediate Term Government Income
Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to MGF Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your
- 26 -
<PAGE>
transaction by telephone (for example during times of unusual market activity)
consider requesting your exchange by mail or by visiting the Trust's offices at
312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. An exchange will be
effected at the next determined net asset value (or offering price, if sales
load is applicable) after receipt of a request by MGF Service Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a capital
gain or loss. Before making an exchange, contact MGF Service Corp. to obtain a
current prospectus for any of the other funds in the Midwest Group and more
information about exchanges among the Midwest Group of Funds.
DIVIDENDS AND DISTRIBUTIONS
All of the net investment income of each Fund is declared as a dividend
to shareholders of record on each business day of the Trust and paid monthly.
Each Fund expects to distribute any net realized long-term capital gains at
least once each year. Management will determine the timing and frequency of the
distributions of any net realized short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then-current net
asset value and your account will be converted to the Share Option.
- 27 -
<PAGE>
An investor who has received in cash any dividend or capital gains
distribution from either Fund may return the distribution within thirty days of
the distribution date to MGF Service Corp. for reinvestment at the net asset
value next determined after its return. The investor or his dealer must notify
MGF Service Corp. that a distribution is being reinvested pursuant to this
provision.
TAXES
Each Fund has qualified in all prior years and intends to continue to
qualify for the special tax treatment afforded a "regulated investment company"
under Subchapter M of the Internal Revenue Code so that it does not pay federal
taxes on income and capital gains distributed to shareholders. Each Fund intends
to distribute substantially all of its net investment income and any net
realized capital gains to its shareholders. Distributions of net investment
income as well as from net realized short-term capital gains, if any, are
taxable as ordinary income. Since the Funds' investment income is derived from
interest rather than dividends, no portion of such distributions is eligible for
the dividends received deduction available to corporations. Distributions of net
realized long-term capital gains are taxable as long-term capital gains
regardless of how long you have held your Fund shares. Redemptions and exchanges
of shares of the Funds are taxable events on which a shareholder may realize a
gain or loss.
The Funds will mail to each of their shareholders a statement
indicating the amount and federal income tax status of all distributions made
during the year. In addition to federal taxes, shareholders of the Funds may be
subject to state and local taxes on distributions. Shareholders should consult
their tax advisors about the tax effect of distributions and withdrawals from
the Funds and the use of the Automatic Withdrawal Plan and the Exchange
Privilege. The tax consequences described in this section apply whether
distributions are taken in cash or reinvested in additional shares.
OPERATION OF THE FUNDS
The Funds are diversified series of Midwest Strategic Trust, an
open-end management investment company organized as a Massachusetts business
trust on November 18, 1982. The Board of Trustees supervises the business
activities of the Trust. Like other mutual funds, the Trust retains various
organizations to perform specialized services for the Funds.
- 28 -
<PAGE>
The Trust retains Midwest Group Financial Services, Inc., 312 Walnut
Street, Cincinnati, Ohio (the "Adviser"), to manage the Funds' investments and
their business affairs. The Adviser was organized in 1974 and is also the
investment adviser to two other series of the Trust, five series of Midwest
Trust and seven series of Midwest Group Tax Free Trust. The Adviser is a
subsidiary of Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Each Fund pays the Adviser a fee equal to the annual
rate of .75% of the average value of its daily net assets up to $200 million;
.7% of such assets from $200 million to $500 million; and .5% of such assets in
excess of $500 million.
Scott Weston, Assistant Vice President-Investments of the Adviser,
is primarily responsible for managing the portfolio of the U.S. Government
Securities Fund. Mr. Weston has been employed by the Adviser since 1992 and
has been managing the Fund's portfolio since March 1996. Prior to 1992, Mr.
Weston was employed by Adex International, Inc. as a cost control manager.
Robert H. Leshner, Chairman and founder of the Adviser, is primarily
responsible for managing the portfolio of the Treasury Total Return Fund.
Mr. Leshner founded the Adviser in 1974 and has been managing the Fund's
portfolio since January 1995.
The Funds are responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Funds' shares (see
"Distribution Plan"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Funds, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Funds may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati,
Ohio, a subsidiary of Leshner Financial, Inc., to serve as the Funds' transfer
agent, dividend paying agent and shareholder service agent.
MGF Service Corp. also provides accounting and pricing services to
the Funds. MGF Service Corp. receives a monthly fee from each Fund for
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable it to perform its duties.
- 29 -
<PAGE>
In addition, MGF Service Corp. has been retained by the Adviser to
assist the Adviser in providing administrative services to the Funds. In this
capacity, MGF Service Corp. supplies executive, administrative and regulatory
services, supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission and state securities authorities. The Adviser
(not the Funds) pays MGF Service Corp. a fee for these administrative services
equal to one-fourth of its advisory fee from the Funds.
The Adviser serves as principal underwriter for the Funds and, as such,
is the exclusive agent for the distribution of shares of the Funds. Robert H.
Leshner, Chairman and a director of the Adviser, is President and a Trustee of
the Trust. John F. Splain, Secretary and General Counsel of the Adviser, is
Secretary of the Trust.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Funds as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Funds. Subject to the requirements of the
Investment Company Act of 1940 and procedures adopted by the Board of Trustees,
the Funds may execute portfolio transactions through any broker or dealer and
pay brokerage commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or (iii) an
affiliated person of which is an affiliated person of the Trust or the Adviser.
Shares of each Fund have equal voting rights and liquidation rights.
Each Fund shall vote separately on matters submitted to a vote of the
shareholders except in matters where a vote of all series of the Trust in the
aggregate is required by the Investment Company Act of 1940 or otherwise. When
matters are submitted to shareholders for a vote, each shareholder is entitled
to one vote for each full share owned and fractional votes for fractional shares
owned. The Trust does not normally hold annual meetings of shareholders. The
Trustees shall promptly call and give notice of a meeting of shareholders for
the purpose of voting upon the removal of any Trustee when requested to do so in
writing by shareholders holding 10% or more of the Trust's outstanding shares.
The Trust will comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 in order to facilitate communications among shareholders.
- 30 -
<PAGE>
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Funds have adopted a plan of distribution (the "Plan") under which the Funds may
directly incur or reimburse the Adviser for certain distribution-related
expenses, including payments to securities dealers and others who are engaged in
the sale of shares of the Funds and who may be advising investors regarding the
purchase, sale or retention of Fund shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by MGF Service Corp.; expenses of
formulating and implementing marketing and promotional activities, including
direct mail promotions and mass media advertising; expenses of preparing,
printing and distributing sales literature and prospectuses and statements of
additional information and reports for recipients other than existing
shareholders of the Funds; expenses of obtaining such information, analyses and
reports with respect to marketing and promotional activities as the Trust may,
from time to time, deem advisable; and any other expenses related to the
distribution of the Funds' shares.
The annual limitation for payment of expenses pursuant to the Plan is
.25% of each Fund's average daily net assets. Unreimbursed expenditures will not
be carried over from year to year. In the event the Plan is terminated by a Fund
in accordance with its terms, the Fund will not be required to make any payments
for expenses incurred by the Adviser after the date the Plan terminates.
Pursuant to the Plan, the Funds may also make payments to banks or
other financial institutions that provide shareholder services and administer
shareholder accounts. The Glass-Steagall Act prohibits banks from engaging in
the business of underwriting, selling or distributing securities. Although the
scope of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, management of the
Trust believes that the Glass- Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Funds or their shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not.
- 31 -
<PAGE>
The Funds may from time to time purchase securities issued by banks which
provide such services; however, in selecting investments for the Funds, no
preference will be shown for such securities.
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules require fund-level accounting in which all sales charges -
front-end load, 12b-1 fees or contingent deferred load - terminate when a
percentage of gross sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
On each day that the Trust is open for business, the public offering
price (net asset value plus applicable sales load) of the shares of each Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange, currently 4:00 p.m., Eastern time. The Trust is open for
business on each day the New York Stock Exchange is open for business and on any
other day when there is sufficient trading in a Fund's investments that its net
asset value might be materially affected. The net asset value per share of each
Fund is calculated by dividing the sum of the value of the securities held by
the Fund plus cash or other assets minus all liabilities (including estimated
accrued expenses) by the total number of shares outstanding of the Fund, rounded
to the nearest cent.
The Funds' portfolio securities for which market quotations are readily
available are valued at their most recent bid prices as obtained from one or
more of the major market makers for such securities. Securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.
PERFORMANCE INFORMATION
From time to time, each Fund may advertise its "average annual total
return." Each Fund may also advertise "yield." Both yield and average annual
total return figures are based on historical earnings and are not intended to
indicate future performance.
The "average annual total return" of a Fund refers to the average
annual compounded rates of return over the most recent 1, 5 and 10 year periods
or, where the Fund has not been in
- 32 -
<PAGE>
operation for such period, over the life of the Fund (which periods will be
stated in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment.
The calculation of "average annual total return" assumes the reinvestment of all
dividends and distributions and the deduction of the current maximum sales load
from the initial investment. A Fund may also advertise total return (a
"nonstandardized quotation") which is calculated differently from "average
annual total return." A nonstandardized quotation of total return may be a
cumulative return which measures the percentage change in the value of an
account between the beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains distributions. A
nonstandardized quotation of total return may also indicate average annual
compounded rates of return over periods other than those specified for "average
annual total return." These nonstandardized returns do not include the effect of
the applicable sales load which, if included, would reduce total return. A
nonstandardized quotation of total return will always be accompanied by a Fund's
"average annual total return" as described above.
The "yield" of a Fund is computed by dividing the net investment income
per share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period.
From time to time, the Funds may advertise their performance rankings
as published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators. In connection with a ranking, the Funds may provide additional
information, such as the particular category of funds to which the ranking
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of fee waivers and/or expense reimbursements,
if any. The Funds may also present their performance and other investment
characteristics, such as volatility or a temporary defensive posture, in light
of the Adviser's view of current or past market conditions or historical trends.
- 33 -
<PAGE>
Further information about the Funds' performance is contained in the
Trust's annual report which can be obtained by shareholders at no charge by
calling MGF Service Corp. (Nationwide call toll-free 800-543-0407; in Cincinnati
call 629- 2050) or by writing to the Trust at the address on the front of this
Prospectus.
- 34 -
<TABLE>
<CAPTION>
Midwest Strategic Trust ACCOUNT NO. _____________________
Account Application (Check appropriate Fund) (For Fund Use Only)
<S> <C> <C> <C>
[] Treasury Total Return Fund (22) $_________________ FOR BROKER/DEALER USE ONLY
Firm Name:_____________________________
[] U.S. Government Securities Fund (8) $_________________ Home Office Address: ___________________
Branch Address: ________________________
Rep Name & No.: ________________________
Please mail account application to: Rep Signature: _________________________
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
========================================================================================================================
[] Check or draft enclosed payable to the applicable Fund designated above.
[] Bank Wire From:
______________________________________________________________________________________________________________
[] Exchange From:
______________________________________________________________________________________________________________
(Fund Name) (Fund Account Number)
Account Name S.S. #/Tax l.D.#
________________________________________________________________________________________ _____________________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial
account please list
minor's S.S.#)
___________________________________________________________________________________________________ Citizenship:[] U.S.
Name of Joint Tenant, Partner, Custodian []Other
Address Phone
___________________________________________________________________________________________________ ( )---------------
Street or P.O. Box Business Phone
___________________________________________________________________________________________________ ( )-------------
City State Zip Home Phone
Check Appropriate Box: [] Individual [] Joint Tenant (Right of survivorship presumed)
[] Partnership [] Corporation [] Trust [] Custodial [] Non-Profit [] Other
Occupation and Employer
Name/Address______________________________________________________________________________________________
Are you an associated person of an NASD member? [] Yes [] No
========================================================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the Taxpayer Identification Number listed
above is my correct number. Check box if appropriate:
[] I am exempt from backup withholding under the provisions of section 3406(a)(1)(c) of the Internal Revenue Code; or I am not
subject to backup withholding because I have not been notified that I am subject to backup withholding as a result of a failure
to report all interest or dividends; or the Internal Revenue Service has notified me that I am no longer subject to backup
withholding.
[] I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me and I have mailed or
delivered an application to receive a Taxpayer Identification Number to the Internal Revenue Service Center or Social Security
Administration Office. I understand that if I do not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
=======================================================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[] Share Option -- Income distributions and capital gains distributions automatically reinvested in additional
shares.
[] Income Option -- Income distributions and short term capital gains distributions paid in cash, long term capital
gains distributions reinvested in additional shares.
[] Cash Option -- Income distributions and capital gains distributions paid in cash.
========================================================================================================================
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's confirmation of the following holdings of
eligible load funds of the Midwest Group of Funds.
Account Number/Name Account Number/Name
_______________________________________________________ ______________________________________________________
_______________________________________________________ ______________________________________________________
Letter of Intent: (Complete the Right of Accumulation section if related accounts are being applied to your Letter of Intent.)
[] I agree to the Letter of Intent in the current Prospectus of Midwest Stategic Trust. Although I am not obligated to
purchase, and the Trust is not obligated to sell, I intend to invest over a 13 month period beginning ____________________ 19
(Purchase Date of not more than 90 days prior to this Letter) an aggregate amount in the load funds of the Midwest Group of
Funds at least equal to (check appropriate box):
[] $100,000 [] $250,000 [] $500,000 [] $1,000,000
========================================================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the Funds' current Prospectus, that he is of legal
age, and that he has full authority and legal capacity for himself or the organization named below, to make this investment and
to use the options selected above. The investor appoints MGF Service Corp. as his agent to enter orders for shares whether by
direct purchase or exchane, to receive dividends and distributions for automatic reinvestment in additional shares of the Funds
for credit to the investor's account and to surrender for redemption shares held in the investor's account in accordance with
any of the procedures elected above or for payment of service charges incurred by the investor. The investor further agrees
that MGF Service Corp. can cease to act as such agent upon ten days' notice in writing to the investor at the address contained
in this Application. The investor hereby ratifies any instructions given pursuant to this Application and for himself and his
successors and assigns does hereby release MGF Service Corp., Midwest Strategic Trust, Midwest Group Financial Services, Inc.,
and their respective officers, employees, agents and affiliates from any and all liability in the performance of the acts
instructed herein provided that such entities have exercised due care to determine that the instructions are genuine.
___________________________________________________ ___________________________________________________
Signature of Individual Owner, Corporate Officer, Signature of Joint Owner, if Any
Trustee, etc.
________________________________________________ ____________________________________________________
Title of Corporate Officer, Trustee, etc. Date
NOTE: Corporations, trusts and other organizations must complete the resolution form on the reverse side.
Unless otherwise specified, each joint owner shall have full authority to act on behalf of the account.
========================================================================================
AUTOMATIC INVESTMENT PLAN (Complete for Investments Into the Fund(s))
The Automatic Investment Plan is available for all established accounts of Midwest Strategic Trust. There is no charge for this
service, and it offers the convenience of automatic investing on a regular basis. The minimum investment is $50.00 per month.
For an account that is opened by using this Plan, the minimum initial and subsequent investments must be $50.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be discontinued by the shareholder at any time.
Please invest $ _________________ per month in the (check the appropriate Fund.)
[] U.S. Government Securities Fund [] Treasury Total Return Fund
ABA Routing Number______________________________
FI Account Number________________________________
[] Checking Account [] Savings Account
- ----------------------------------------------------------------------
Name of Financial Institution (FI) Please make my automatic investment on:
[] the last business day of each month
______________________________________________________________________ [] the 15th day of each month
City State [] both the 15th and last business day
X_____________________________________________________________________ X_______________________________________
(Signature of Depositor EXACTLY as it appears on FI Records) (Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign exactly as signature appears on your FI's
records.)
Please attach a voided check for the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which MGF Service Corp. ("MGF") has put into effect, by which amounts,
determined by your depositor, payable to the applicable Fund designated above, for purchase of shares of said Fund, are
collected by MGF, MGF hereby agrees:
MGF will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the payment
by you of any amount drawn by the Funds to their own order on the account of your depositor or from any liability to any person
whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any such
checks. MGF will defend, at its own cost and expense, any action which might be brought against you by any person or persons
whatsoever because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. MGF will refund to you any amount erroneously paid by you to the Funds on any such check if
the claim for the amount of such erroneous payment is made by you within six (6) months from the date of such erroneous
payment; your participation in this arrangement and that of the Funds may be terminated by thirty (30) days written notice from
either party to the other.
========================================================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $_________ from my mutual fund account beginning the last business day of the
month of __________________.
Please Indicate Withdrawal Schedule (Check One):
[] Monthly -- Withdrawals will be made on the last business day of each month.
[] Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
[] Annually -- Please make withdrawals on the last business day of the month of:_____________________.
Please Select Payment Method (Check One):
[] Exchange: Please exchange the withdrawal proceeds into another Midwest account number:_ _-- _ _ _ _--_
[] Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
[] ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as indicated below.
I understand that the transfer will be completed in two to three business days and that there is no charge.
[] Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the wire will
be completed in one business day and that there is an $8.00 fee.
Please attach a voided
check for ACH or bank wire___________________________________________________________________________________________
check for ACH or bank wire Bank Name Bank Address
________________________________________________________________________________________________
Bank ABA# Account # Account Name
[] Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing address below:
Name of
payee___________________________________________________________________________________________________________________
Please send
to:____________________________________________________________________________________________________________________
Street address City State Zip
========================================================================================================================
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of Midwest Strategic Trust (the Trust) and that
________________________________________________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of the corporation or organization and to take any
action for it as may be necessary or appropriate with respect to its shareholder account with the Trust, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign any documents necessary or appropriate to
appoint MGF Service Corp. as redemption agent of the corporation or organization for shares of the applicable series of the
Trust, to establish or acknowledge terms and conditions governing the redemption of said shares and to otherwise implement the
privileges elected on the Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the Charter and By-Laws or other empowering documents of
the
_______________________________________________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws
of__________________________________________________________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the organization or corporation duly called and held on
at which a quorum was present and acting throughout, and that the same are now in full force and effect. I further certify that
the following is (are) duly elected officer(s) of the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
Name Title
___________________________________________________ _________________________________________________________
___________________________________________________ _________________________________________________________
___________________________________________________ _______________________________________________________
Witness my hand and seal of the corporation or organization this_______________________day
of_______________________________________, 19_______
___________________________________________________ _________________________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above resolutions, this certificate must also be
signed by another officer.
</TABLE>
<PAGE>
MIDWEST STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4004
Nationwide (Toll-Free) 800-543-8721
Cincinnati 513-629-2000
Board of Trustees
Dale P. Brown
Gary W. Heldman
H. Jerome Lerner
Robert H. Leshner
Richard A. Lipsey
Donald J. Rahilly
Fred A. Rappoport
Oscar P. Robertson
Robert B. Sumerel
Officers
Robert H. Leshner, President
John F. Splain, Secretary
Mark J. Seger, Treasurer
Investment Adviser
MIDWEST GROUP FINANCIAL SERVICES, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4004
Transfer Agent
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-543-0407
Cincinnati: 513-629-2050
Rate Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
- 35 -
<PAGE>
TABLE OF CONTENTS
PAGE
EXPENSE INFORMATION............................................................
FINANCIAL HIGHLIGHTS...........................................................
INVESTMENT OBJECTIVES AND POLICIES .............................................
HOW TO PURCHASE SHARES.........................................................
SHAREHOLDER SERVICES............................................................
HOW TO REDEEM SHARES...........................................................
EXCHANGE PRIVILEGE.............................................................
DIVIDENDS AND DISTRIBUTIONS....................................................
TAXES..........................................................................
OPERATION OF THE FUNDS ........................................................
DISTRIBUTION PLAN..............................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE ..........................
PERFORMANCE INFORMATION........................................................
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 36 -
<PAGE>
PROSPECTUS
August 1, 1996
MIDWEST STRATEGIC TRUST
312 WALNUT STREET, 21ST FLOOR
CINCINNATI, OHIO 45202-4094
EQUITY FUND
UTILITY FUND
The Equity Fund and the Utility Fund (individually a "Fund" and
collectively the "Funds") are two separate series of Midwest Strategic Trust.
The EQUITY FUND seeks long-term capital appreciation by investing
primarily in common stocks which are believed by the Adviser to offer growth
potential.
The UTILITY FUND seeks a high level of current income by
investing primarily in securities of public utilities. Capital
appreciation is a secondary objective.
Each Fund offers two classes of shares: Class A shares (sold subject to
a maximum 4% front-end sales load and a 12b-1 fee of up to .25% of average daily
net assets) and Class C shares (sold subject to a 1% contingent deferred sales
load for a one-year period and a 12b-1 fee of up to 1% of average daily net
assets). Each Class A and Class C share of a Fund represents identical interests
in the investment portfolio of such Fund and has the same rights, except that
(i) Class C shares bear the expenses of higher distribution fees, which will
cause Class C shares to have a higher expense ratio and to pay lower dividends
than those related to Class A shares; (ii) certain other class specific expenses
will be borne solely by the class to which such expenses are attributable; and
(iii) each class has exclusive voting rights with respect to matters relating to
its own distribution arrangements.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
Midwest Group Financial Services, Inc. (the "Adviser") manages the
Funds' investments and their business affairs.
This Prospectus sets forth concisely the information about the Funds
that you should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information dated August 1, 1996 has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling one of the numbers listed below.
- ------------------------------------------------------------------------------
For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free) . . . . . . . . . . . . . . . 800-543-0407
Cincinnati . . . . . . . . . . . . . . . . . . . . . 513-629-2050
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
Class A Class C
Shareholder Transaction Expenses Shares Shares
------ -------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price). . . . . . . . 4% None
Maximum Contingent Deferred Sales Load
(as a percentage of original purchase price) . . . None* 1%
Sales Load Imposed on Reinvested Dividends . . . . None None
Exchange Fee . . . . . . . . . . . . . . . . . . . None None
Redemption Fee . . . . . . . . . . . . . . . . . . None** None**
* Purchases at net asset value of amounts totaling $1 million or more may be
subject to a contingent deferred sales load of .75% if a redemption
occurred within 12 months of purchase and a commission was paid by the
Adviser to a participating unaffiliated dealer.
** A wire transfer fee is charged by the Funds' Custodian in the case of
redemptions made by wire. Such fee is subject to change and is
currently $8. See "How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Equity Utility
Fund Fund
Class A Class C Class A Class C
Shares Shares Shares Shares
Management Fees .07%(A) .07%(A) .75% .75%
12b-1 Fees(B) .01% .26% .11% .59%
Other Expenses 1.17% 1.67% .39% .66%
----- ----- ----- -----
Total Fund Operating Expenses 1.25%(C) 2.00%(C) 1.25% 2.00%
===== ===== ===== =====
(A) Absent waivers of management fees, such fees would have been .75% for the
fiscal year ended March 31, 1996.
(B) Class A shares may incur 12b-1 fees in an amount up to .25% of average
net assets and Class C shares may incur 12b-1 fees in an amount up to
1.00% of average net assets. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales loads permitted by the
National Association of Securities Dealers.
(C) Absent waivers of management fees and expense reimbursements by the
Adviser, total Fund operating expenses would have been 2.02% and 2.70%
for Class A shares and Class C shares, respectively, for the fiscal year
ended March 31, 1996.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. The percentages expressing annual fund operating expenses are based
on amounts incurred during the most recent fiscal year. THE EXAMPLE BELOW SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Example Class A Class C
You would pay the following Shares Shares
expenses on a $1,000 ------- ------
investment, assuming (1)
5% annual return and (2) 1 Year $ 52 $ 30
redemption at the end of 3 Years 78 63
each time period: 5 Years 106 108
10 Years 185 233
- 2 -
<PAGE>
FINANCIAL HIGHLIGHTS
The following information, which has been audited by Arthur Andersen LLP, is
an integral part of the audited financial statements and should be read in
conjunction with the financial statements. The financial statements as of March
31, 1996 and related auditors' report appear in the Statement of Additional
Information of the Funds, which can be obtained by shareholders at no charge by
calling MGF Service Corp. (Nationwide call toll-free 800-543-0407, in Cincinnati
call 629-2050) or by writing to the Trust at the address on the front of this
Prospectus.
<TABLE>
EQUITY FUND - CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 9.84 $ 9.26 $ 10.02
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.13 0.15 0.08
Net realized and unrealized gains (losses) on
investments........................................ 2.60 0.59 ( 0.34)
--------------- --------------- ---------------
Total from investment operations.......................... 2.73 0.74 ( 0.26 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.12 ) ( 0.16 ) ( 0.08 )
Distributions from net realized gains.................. -- -- ( 0.42 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.12 ) ( 0.16 ) ( 0.50 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.45 $ 9.84 $ 9.26
=============== =============== ===============
Total return(A) .......................................... 27.90% 8.07% ( 3.98%) (C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 8,502 $ 4,300 $ 3,346
=============== =============== ===============
Ratio of expenses to average net assets(B) .............. 1.25% 1.25% 1.24% (C)
Ratio of net investment income to average net assets ..... 1.06% 1.57% 0.82% (C)
Portfolio turnover rate................................... 38% 159% 109% (C)
<FN>
(A) The total returns shown do not include the effect of applicable sales
loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 2.02%, 1.94% and
2.04%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively.
(C) Annualized.
- 3 -
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (JUNE 7, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 9.86 $ 9.26 $ 10.00
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.05 0.10 0.03
Net realized and unrealized gains (losses) on
investments......................................... 2.60 0.57 ( 0.32)
--------------- --------------- ---------------
Total from investment operations.......................... 2.65 0.67 ( 0.29 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.05 ) ( 0.07 ) ( 0.03 )
Distributions from net realized gains.................. -- -- ( 0.42 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.05 ) ( 0.07 ) ( 0.45 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.46 $ 9.86 $ 9.26
=============== =============== ===============
Total return(A) .......................................... 26.90% 7.32% ( 3.58%) (C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 2,436 $ 1,995 $ 5,857
=============== =============== ===============
Ratio of expenses to average net assets(B) .............. 2.00% 2.00% 1.94% (C)
Ratio of net investment income to average net assets ..... 0.38% 0.68% 0.58% (C)
Portfolio turnover rate................................... 38% 159% 109% (C)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A) The total returns shown do not include the effect of applicable sales
loads.
(B) Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 2.70%, 2.50% and
2.33%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively.
(C) Annualized.
</FN>
</TABLE>
<PAGE>
- 4 -
<TABLE>
UTILITY FUND - CLASS A
Per Share Data for a Share Outstanding Throughout Each Period
Period
Year Ended March 31, Ended
----------------------------------------------------- March 31,
1996 1995 1994 1993 1992 1991 1990(A)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period............ $10.47 $ 10.52 $ 11.34 $ 10.58 $ 10.01 $ 9.75 $ 9.53
--------- --------- --------- --------- --------- --------------------
Income from investment operations:
Net investment income.......................... 0.47 0.43 0.37 0.48 0.51 0.61 0.43
Net realized and unrealized gains (losses)
on investments............................... 1.77 (0.05) (0.59) 1.62 0.75 0.30 0.22
--------- --------- --------- --------- --------- --------- ----------
Total from investment operations.................. 2.24 0.38 (0.22) 2.10 1.26 0.91 0.65
--------- --------- --------- --------- --------- --------- ----------
Less distributions:
Dividends from net investment income (B) ...... (0.47) (0.43) (0.37) (0.48) (0.51) (0.61) (0.43)
Distributions from net realized gains(B) ...... -- -- (0.23) (0.86) (0.18) (0.04) --
---------- --------- --------- --------- --------- --------- ---------
Total distributions............................... (0.47) (0.43) (0.60) (1.34) (0.69) (0.65) (0.43)
---------- --------- --------- --------- --------- --------- ---------
Net asset value at end of period.................. $12.24 $ 10.47 $ 10.52 $ 11.34 $ 10.58 $ 10.01 $ 9.75
========== ========= ========= ========= ========= ========= ==========
Total return(C) .................................. 21.65% 3.68% ( 2.11%) 20.64% 11.84% 9.23% 8.56%(E)
=========== ========= ========= ========= ========= ========= ==========
Net assets at end of period (000's)............... $40,424 $40,012 $ 40,373 $ 42,051 $29,398 $11,214 $ 5,752
=========== ========= ========= ========= ========= ========= ==========
Ratio of expenses to average net assets(D) ....... 1.25% 1.25% 1.25% 1.40% 1.63% 1.80% 0.57%(E)
Ratio of net investment income to
average net assets(D) ........................ 3.97% 4.06% 3.32% 4.41% 4.83% 6.25% 6.87%(E)
Portfolio turnover rate........................... 11% 17% 91% 137% 33% 61% 119%(E)
<FN>
(A) Represents the period from the initial public offering of shares (August 15,
1989) through March 31, 1990.
(B) For the periods ended prior to March 31, 1993, the per share data was
calculated using average shares outstanding throughout each period, whereas
for the years ended March 31, 1993 and thereafter, the per share data was
calculated based upon actual distributions. Actual distributions per share
based upon the actual number of shares outstanding on the ex-dividend dates
of distributions amounted to $.48, $.57, and $.29 from net investment income
for the periods ended March 31, 1992, 1991 and 1990, respectively, and $.13
and $.03 from net realized capital gains for the years ended March 31, 1992
and 1991, respectively.
(C) The total returns shown do not include the effect of applicable sales loads.
(D) Absent fee waivers and/or expense reimbursements by the Adviser, the ratios
of expenses to average net assets would have been 1.91% and 2.79%(E) for the
periods ended March 31, 1991 and 1990, respectively.
(E) Annualized.
</FN>
</TABLE>
UTILITY FUND - CLASS C
<TABLE>
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.46 $ 10.51 $ 11.55
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.37 0.35 0.23
Net realized and unrealized gains (losses) on
investments......................................... 1.78 ( 0.04) (0.81)
--------------- --------------- ---------------
Total from investment operations.......................... 2.15 0.31 ( 0.58 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.38 ) ( 0.36 ) ( 0.23 )
Distributions from net realized gains.................. -- -- ( 0.23 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.38 ) ( 0.36 ) ( 0.46 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.23 $ 10.46 $ 10.51
=============== =============== ===============
Total return(A) .......................................... 20.78% 3.00% ( 7.89%) (B)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 3,686 $ 3,599 $ 1,742
=============== =============== ===============
Ratio of expenses to average net assets .................. 2.00% 2.00% 2.00% (B)
Ratio of net investment income to average net assets ..... 3.19% 3.41% 2.19% (B)
Portfolio turnover rate................................... 11% 17% 91% (B)
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(A) The total returns shown do not include the effect of applicable sales loads.
(B) Annualized.
- 5 -
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Equity Fund and the Utility Fund are two series of Midwest Strategic Trust
(the "Trust"), each with its own portfolio and investment objective(s). Neither
Fund is intended to be a complete investment program, and there is no assurance
that the investment objectives of either Fund can be achieved. Each Fund's
investment objectives may be changed by the Board of Trustees without
shareholder approval, but only after notification has been given to shareholders
and after this Prospectus has been revised accordingly. If there is a change in
a Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. Unless otherwise indicated, all investment practices and
limitations of the Funds are nonfundamental policies which may be changed by the
Board of Trustees without shareholder approval.
EQUITY FUND
The Equity Fund seeks long-term capital appreciation by investing primarily in
common stocks which are believed by the Adviser to offer growth potential. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in common stocks. However, the Fund may, in seeking its investment objective of
long-term capital appreciation, invest in securities convertible into common
stocks (such as convertible bonds, convertible preferred stocks and warrants)
which are rated at the time of purchase in the four highest grades assigned by
Moody's Investors Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Ratings
Group (AAA, AA, A or BBB) or unrated securities determined by the Adviser to be
of comparable quality. Preferred stocks and bonds rated Baa or BBB have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to pay principal
and interest or to pay the preferred stock obligations than is the case with
higher grade securities. Subsequent to its purchase by the Fund, a security may
cease to be rated or its rating may be reduced below Baa or BBB, and the Adviser
will consider such an event to be relevant in its determination of whether the
Fund should continue to hold such security. The Fund will invest in securities
of companies having at least three years operating history.
The Adviser, in selecting securities for purchase, will employ a quantitative
screening strategy, searching for securities which the Adviser believes offer
above market growth at below market pricing. The Adviser attempts to isolate
such securities, out of its current database of approximately 1,600 securities
which meet its specific criteria, based upon the following characteristics: low
relative price-earnings ratio valuation; consistent profitability; positive
earnings estimate trends; positive market trends; and price neglect.
- 6 -
<PAGE>
The Fund may from time to time invest a portion of its assets in small,
unseasoned companies. While smaller companies generally have potential for rapid
growth, they often involve higher risks because they lack the management
experience, financial resources, product diversification and competitive
strengths of larger corporations. In addition, in many instances, the securities
of smaller companies are traded only over-the-counter or on a regional
securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations. When
making large sales, the Fund may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time.
Investments in equity securities are subject to inherent market risks and
fluctuations in value due to earnings, economic conditions, quality ratings and
other factors beyond the control of the Adviser. As a result, the yield and net
asset value of the Fund will fluctuate.
The Fund may invest in foreign companies through the purchase of sponsored
American Depository Receipts (certificates of ownership issued by an American
bank or trust company as a convenience to investors in lieu of the underlying
shares which it holds in custody) or other securities of foreign issuers that
are publicly traded in the United States. To the extent that the Fund invests in
such securities, such investments may be subject to special risks, including
future political and economic developments and the possibility of seizure or
nationalization of companies, imposition of withholding taxes on income,
establishment of exchange controls or adoption of other restrictions, that might
affect an investment adversely.
When the Adviser believes substantial price risks exist for common stocks and
securities convertible into common stocks because of uncertainties in the
investment outlook or when in the judgment of the Adviser it is otherwise
warranted in selling to manage the Fund's portfolio, the Fund may temporarily
hold for defensive purposes all or a portion of its assets in short-term
obligations such as bank debt instruments (certificates of deposit, bankers'
acceptances and time deposits), commercial paper, U.S. Government obligations
having a maturity of less than one year or repurchase agreements collateralized
by U.S. Government obligations. If, in addition to believing that substantial
price risks exist for common stocks and securities convertible into common
stocks, the Adviser believes that market indicators point to lower interest
rates, the Fund may, in seeking its objective of long-term capital appreciation,
temporarily invest all or a portion of its assets in long-term U.S. Treasury
obligations.
- 7 -
<PAGE>
UTILITY FUND
The Utility Fund seeks a high level of current income. Capital appreciation is
a secondary objective. The Fund seeks to achieve its investment objectives by
investing primarily in securities of public utilities. The Fund may invest in
any type of security; however, under normal circumstances, at least 65% of its
total assets will be invested in securities of public utilities.
Under normal market conditions, the Fund will invest primarily in common,
preferred and convertible preferred stocks of public utilities that currently
pay dividends. The Fund may also invest in investment grade bonds of public
utilities. The Fund may purchase preferred stocks and bonds which are rated at
the time of purchase in the four highest grades assigned by Moody's Investors
Service, Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Ratings Group (AAA, AA, A
or BBB) or unrated securities determined by the Adviser to be of comparable
quality. Preferred stocks and bonds rated Baa or BBB have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to pay principal and interest or to
pay the preferred stock obligations than is the case with higher grade
securities. Subsequent to its purchase by the Fund, a security may cease to be
rated or its rating may be reduced below Baa or BBB, and the Adviser will
consider such an event to be relevant in its determination of whether the Fund
should continue to hold such security. The public utilities industry includes
companies that produce or supply electric power, natural gas, water, sanitary
services, telecommunications and other communications services (but not radio or
television broadcasters) for public use or consumption. The Fund may invest in
any combination of public utility companies. The Fund will invest in securities
of companies having at least three years operating history.
Historically, equity securities of public utilities have generated higher
yields than have equity securities of companies in other industries. The public
utilities industry has shown a tendency for steady increases in dividends
because the industry's profits have not been eroded by competition to the same
extent as other industries. In selecting securities for the Fund, the Adviser
will attempt to purchase stocks of public utilities exhibiting the following
characteristics: above average dividend yield; strong potential for dividend
increases; positive cash flow; improving fundamentals; stable financial
condition; and reasonable growth potential.
Investments in equity and debt securities are subject to inherent market risks
and fluctuations in value due to earnings, economic conditions, quality ratings
and other factors beyond the
- 8 -
<PAGE>
control of the Adviser. Debt securities are subject to price fluctuations based
upon changes in the level of interest rates, which will generally result in all
those securities changing in price in the same way, i.e., all those securities
experiencing appreciation when interest rates decline and depreciation when
interest rates rise. As a result, the yield and net asset value of the Fund will
fluctuate.
In addition, the Fund will be subject to the risks associated with the public
utility industry, including rate regulation by governmental agencies, which may
result in difficulties in obtaining an adequate return on invested capital, in
passing on cost increases and in financing large construction projects. Public
utilities furnishing power or other energy related services may encounter
difficulties in obtaining fuel at reasonable prices, shortages of fuel, energy
conservation measures, restrictions on operations and increased costs and delays
attributable to licensing and environmental considerations and the special risks
of constructing and operating nuclear power generating facilities or other
specialized types of facilities. The Fund will limit its investments so that it
will not be a public utility holding company or acquire public utility company
securities in violation of the Public Utility Holding Company Act of 1935.
For defensive purposes, the Fund may temporarily hold all or a portion of its
assets in short-term obligations such as bank debt instruments (certificates of
deposit, bankers' acceptances and time deposits), commercial paper, U.S.
Government obligations having a maturity of less than one year or repurchase
agreements collateralized by U.S. Government obligations. The Fund may, in
seeking its objective of a high level of current income, temporarily invest all
or a portion of its assets in long-term U.S. Treasury obligations.
The Utility Fund may also engage in the following investment techniques, each
of which may involve certain risks:
FOREIGN SECURITIES. The Fund may invest up to 10% of its total assets at the
time of purchase in securities of foreign issuers. When selecting foreign
investments, the Adviser will seek to invest in securities that have investment
characteristics and qualities comparable to the kinds of domestic securities in
which the Fund invests. The Fund may invest in securities of foreign issuers
directly or in the form of sponsored American Depository Receipts. American
Depository Receipts are receipts typically issued by an American bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. Where investments in foreign securities are made in currencies of
foreign countries, the value of the Fund's assets as measured in U.S. dollars
may be affected favorably or
- 9 -
<PAGE>
unfavorably by changes in currency rates and in exchange control regulations.
Foreign investments may be subject to special risks, including future political
and economic developments and the possibility of seizure or nationalization of
companies, imposition of withholding taxes on income, establishment of exchange
controls or adoption of other restrictions, that might affect an investment
adversely. The Fund will not invest in securities of foreign issuers which are
not listed on a recognized domestic or foreign exchange.
OPTIONS. The Fund may write (sell) exchange-listed call options on securities
it owns to earn premium income. When the Fund writes a call option, it may
terminate its obligation by purchasing a call option on the same security in a
closing transaction. For hedging purposes, the Fund may also purchase
exchange-listed put and call options on U.S. Government obligations and
exchange-listed put and call options on interest rate futures contracts (and
sell such options in closing transactions). The aggregate premiums paid for all
options held at any time by the Fund will not exceed 20% of the value of the
Fund's net assets.
Transactions in options involve special risks. The Fund may not be able to
enter into a closing transaction to cancel its obligations with respect to the
options it has written or purchased. If an option purchased by the Fund expires
unexercised, the Fund will lose the premium it paid. In addition, the Fund could
suffer a loss if the premium paid by the Fund in a closing transaction exceeds
the premium income it received. When the Fund writes a call option, its ability
to participate in the capital appreciation of the underlying security is
limited.
In addition to the risks which apply to all options transactions, there are
specific risks relating to options on U.S. Government obligations. Due to the
nature of the market for options on U.S. Government obligations, new expirations
for options on a particular issue held by the Fund may not be available, in
which case the Fund's ability to hedge its portfolio may be limited. Options on
interest rate futures contracts also involve additional risks. For example,
changes in the value of the underlying futures contract will not be fully
reflected in the value of the purchased option. Furthermore, if the Fund engages
in option transactions as part of its hedging strategy, there is the possibility
of imperfect correlation between the movements in prices of the hedging position
and the position being hedged. If a hedge is not fully effective for any reason
including imperfect correlation, the Fund would have been in a better position
if no hedge had been made. In particular,
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the Fund's ability to hedge with options on interest rate futures contracts may
be impaired due to distortion in the anticipated offsetting movements resulting
from differences in the nature of the market involved. Such differences include
differences in the applicable margin requirements, the liquidity of the markets
and the extent of the participation of speculators in the markets. The success
of any hedge will depend upon the Adviser's ability to predict the future
direction of stock prices or interest rates and incorrect predictions by the
Adviser may have an adverse effect on the Fund. In this regard, it should be
noted that the skills and techniques necessary to arrive at such predictions are
different from those needed to predict price changes in individual stocks.
ADDITIONAL INVESTMENT INFORMATION
U.S. GOVERNMENT OBLIGATIONS. "U.S. Government obligations" include securities
which are issued or guaranteed by the United States Treasury, by various
agencies of the United States Government, and by various instrumentalities which
have been established or sponsored by the United States Government. U.S.
Treasury obligations are backed by the "full faith and credit" of the United
States Government. U.S. Treasury obligations include Treasury bills, Treasury
notes, and Treasury bonds. U.S. Treasury obligations also include the separate
principal and interest components of U.S. Treasury obligations which are traded
under the Separate Trading of Registered Interest and Principal of Securities
("STRIPS") program. Agencies or instrumentalities established by the United
States Government include the Federal Home Loan Banks, the Federal Land Bank,
the Government National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Student Loan
Marketing Association, the Small Business Administration, the Bank for
Cooperatives, the Federal Intermediate Credit Bank, the Federal Financing Bank,
the Federal Farm Credit Banks, the Federal Agricultural Mortgage Corporation,
the Resolution Funding Corporation, the Financing Corporation of America and the
Tennessee Valley Authority. Some of these securities are supported by the full
faith and credit of the United States Government while others are supported only
by the credit of the agency or instrumentality, which may include the right of
the issuer to borrow from the United States Treasury. In the case of securities
not backed by the full faith and credit of the United States, the investor must
look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment, and may not be able to assert a claim against the United
States in the event the agency or instrumentality does not meet its commitments.
Shares of the Funds are not guaranteed or backed by the United States
Government.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements.
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Repurchase agreements are transactions by which a Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon time and price, thereby determining the yield during the term of the
agreement. In the event of a bankruptcy or other default of the seller of a
repurchase agreement, a Fund could experience both delays in liquidating the
underlying security and losses. To minimize these possibilities, each Fund
intends to enter into repurchase agreements only with its Custodian, banks
having assets in excess of $10 billion and the largest and, in the Board of
Trustees' judgment, most creditworthy primary U.S. Government securities
dealers. Each Fund will enter into repurchase agreements which are
collateralized by U.S. Government obligations in which that Fund could invest
directly. Collateral for repurchase agreements is held in safekeeping in the
customer-only account of the Funds' Custodian at the Federal Reserve Bank. At
the time a Fund enters into a repurchase agreement, the value of the collateral,
including accrued interest, will equal or exceed the value of the repurchase
agreement and, in the case of a repurchase agreement exceeding one day, the
seller agrees to maintain sufficient collateral so the value of the underlying
collateral, including accrued interest, will at all times equal or exceed the
value of the repurchase agreement. A Fund will not enter into a repurchase
agreement not terminable within seven days if, as a result thereof, more than
10% (with respect to the Utility Fund) or 15% (with respect to the Equity Fund)
of the value of the net assets of the Fund would be invested in such securities
and other illiquid securities.
BORROWING AND PLEDGING. Each Fund may borrow money from banks or other
persons. Borrowing magnifies the potential for gain or loss on the portfolio
securities of the Funds and, therefore, if employed, increases the possibility
of fluctuation in a Fund's net asset value. This is the speculative factor known
as leverage. To reduce the risks of borrowing, the Funds will limit their
borrowings as described below. Each Fund's policies on borrowing and pledging
are fundamental policies which may not be changed without the affirmative vote
of a majority of its outstanding shares.
The Equity Fund may borrow money in an amount not exceeding 10% of its total
assets as a temporary measure for extraordinary or emergency purposes and may
pledge assets in connection with borrowings, but will not pledge more than 10%
of its total assets. The Fund will not make any additional purchases of
portfolio securities if outstanding borrowings exceed 5% of the value of its
total assets.
The Utility Fund may borrow money from banks (provided there is 300% asset
coverage) or from banks or other persons for temporary purposes (in an amount
not exceeding 5% of its total assets). The Fund will not make any borrowing
which would cause
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its outstanding borrowings to exceed one-third of the value of its total assets.
The Fund may pledge assets in connection with borrowings but will not pledge
more than one-third of its total assets. The Fund will not make any additional
purchases of portfolio securities if outstanding borrowings exceed 5% of the
value of its total assets.
LENDING PORTFOLIO SECURITIES. Each Fund may make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes a Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that a Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or U.S. Government obligations, with the Funds' Custodian in an
amount at least equal to the market value of the loaned securities. Although
each Fund does have the ability to make loans of all of its portfolio
securities, it is the present intention of each Fund, which may be changed
without shareholder approval, to limit the amount of loans of portfolio
securities to no more than 25% of its net assets.
PORTFOLIO TURNOVER. The Funds do not intend to use short-term trading as a
primary means of achieving their investment objectives. However, each Fund's
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when portfolio changes are deemed necessary or
appropriate by the Adviser. The portfolio turnover of the Funds may be greater
than that of many other mutual funds. High turnover involves correspondingly
greater commission expenses and transaction costs and increases the possibility
that the Funds would not qualify as regulated investment companies under
Subchapter M of the Internal Revenue Code. A Fund will not qualify as a
regulated investment company if it derives 30% or more of its gross income from
gains (without offset for losses) from the sale or other disposition of
securities held for less than three months. High turnover may result in a Fund
recognizing greater amounts of income and capital gains, which would increase
the amount of income and capital gains which the Fund must distribute to its
shareholders in order to maintain its status as a regulated investment company
and to avoid the imposition of federal income or excise taxes (see "Taxes").
HOW TO PURCHASE SHARES
Your initial investment in either Fund ordinarily must be at least $1,000
($250 for tax-deferred retirement plans). You may purchase additional shares
through the Open Account Program described below. You may open an account and
make an initial investment through securities dealers having a sales agreement
with the Trust's principal underwriter, Midwest Group Financial
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Services, Inc. (the "Adviser"). You may also make a direct initial investment
by sending a check and a completed account application form to MGF Service
Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. Checks should be made
payable to the "Equity Fund" or the "Utility Fund," whichever is applicable.
An account application is included in this Prospectus.
The Trust mails you confirmations of all purchases or redemptions of Fund
shares. Certificates representing shares are not ordinarily issued, but you may
receive a certificate without charge by sending a written request to MGF Service
Corp. Certificates for fractional shares will not be issued. If a certificate
has been issued to you, you will not be permitted to exchange shares by
telephone or to use the automatic withdrawal plan as to those shares. The Trust
and the Adviser reserve the rights to limit the amount of investments and to
refuse to sell to any person.
Investors should be aware that the Funds' account application contains
provisions in favor of the Trust, MGF Service Corp. and certain of their
affiliates, excluding such entities from certain liabilities (including, among
others, losses resulting from unauthorized shareholder transactions) relating to
the various services (for example, telephone exchanges) made available to
investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Trust or MGF Service Corp. in the transaction.
OPEN ACCOUNT PROGRAM. Please direct inquiries concerning the services
described in this section to MGF Service Corp. at the address or numbers
listed below.
After an initial investment, all investors are considered participants in the
Open Account Program. The Open Account Program helps investors make purchases of
shares of the Funds over a period of years and permits the automatic
reinvestment of dividends and distributions of the Funds in additional shares
without a sales load.
Under the Open Account Program, you may purchase and add shares to your
account at any time either through your securities dealer or by sending a check
to MGF Service Corp., P.O. Box 5354, Cincinnati, Ohio 45201-5354. The check
should be made payable to the applicable Fund.
Under the Open Account Program, you may also purchase shares of the Funds by
bank wire. Please telephone MGF Service Corp.
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(Nationwide call toll-free 800-543-0407; in Cincinnati call 629- 2050) for
instructions. Your bank may impose a charge for sending your wire. There is
presently no fee for receipt of wired funds, but MGF Service Corp. reserves the
right to charge shareholders for this service upon thirty days' prior notice to
shareholders.
Each additional purchase request must contain the name of your account and
your account number to permit proper crediting to your account. While there is
no minimum amount required for subsequent investments, the Trust reserves the
right to impose such requirement. All purchases under the Open Account Program
are made at the public offering price next determined after receipt of a
purchase order by the Trust. If a broker-dealer received concessions for selling
shares of the Funds to a current shareholder, such broker-dealer will receive
the concessions described above with respect to additional investments by the
shareholder.
SALES LOAD ALTERNATIVES
Each Fund offers two classes of shares which may be purchased at the election
of the purchaser. The two classes of shares each represent interests in the same
portfolio of investments of a Fund, have the same rights and are identical in
all material respects except that (i) Class C shares bear the expenses of higher
distribution fees; (ii) certain other class specific expenses will be borne
solely by the class to which such expenses are attributable, including transfer
agent fees attributable to a specific class of shares, printing and postage
expenses related to preparing and distributing materials to current shareholders
of a specific class, registration fees incurred by a specific class of shares,
the expenses of administrative personnel and services required to support the
shareholders of a specific class, litigation or other legal expenses relating to
a class of shares, Trustees' fees or expenses incurred as a result of issues
relating to a specific class of shares and accounting fees and expenses relating
to a specific class of shares; and (iii) each class has exclusive voting rights
with respect to matters relating to its own distribution arrangements. The net
income attributable to Class C shares and the dividends payable on Class C
shares will be reduced by the amount of the incremental expenses associated with
the distribution fee (see "Distribution Plans"). Shares of the Utility Fund
purchased prior to August 1, 1993 are Class A shares. Shares of the Equity Fund
purchased prior to August 1, 1993 are Class C shares.
The Funds' alternative sales arrangements permit investors to choose the
method of purchasing shares that is most beneficial
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<PAGE>
given the amount of the purchase, the length of time the investor expects to
hold his shares and other relevant circumstances. Investors should determine
whether under their particular circumstances it is more advantageous to incur a
front-end sales load and be subject to lower ongoing charges, as discussed
below, or to have all of the initial purchase price invested in the Funds with
the investment thereafter being subject to higher ongoing charges. A salesperson
or any other person entitled to receive any portion of a distribution fee may
receive different compensation for selling Class A or Class C shares.
As an illustration, investors who qualify for significantly reduced sales
loads as described below, might elect the Class A sales load alternative because
similar sales load reductions are not available for purchases under the Class C
sales load alternative. Moreover, shares acquired under the Class A sales load
alternative would be subject to lower ongoing distribution fees as described
below. Investors not qualifying for reduced initial sales loads who expect to
maintain their investment for an extended period of time might also elect the
Class A sales load alternative because over time the accumulated continuing
distribution fees on Class C shares may exceed the difference in initial sales
loads between Class A and Class C shares. Again, however, such investors must
weigh this consideration against the fact that less of their funds will be
invested initially under the Class A sales load alternative. Furthermore, the
higher ongoing distribution fees will be offset to the extent any return is
realized on the additional funds initially invested under the Class C sales load
alternative.
Some investors might determine that it would be more advantageous to utilize
the Class C sales load alternative to have more of their funds invested
initially, although remaining subject to higher ongoing distribution fees and,
for a one-year period, being subject to a contingent deferred sales load. For
example, based on estimated fees and expenses, an investor subject to the
maximum 4% initial sales load on Class A shares who elects to reinvest dividends
in additional shares would have to hold the investment in Class A shares
approximately 5 years before the accumulated ongoing distribution fees on the
alternative Class C shares would exceed the initial sales load plus the
accumulated ongoing distribution fees on Class A shares. In this example and
assuming the investment was maintained for more than 5 years, the investor might
consider purchasing Class A shares. This example does not take into account the
time value of money which reduces the impact of the higher ongoing Class C
distribution fees, fluctuations in net asset value or the effect of different
performance assumptions.
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<PAGE>
In addition to the compensation otherwise paid to securities dealers, the
Adviser may from time to time pay from its own resources additional cash bonuses
or other incentives to selected dealers in connection with the sale of shares of
the Funds. On some occasions, such bonuses or incentives may be conditioned upon
the sale of a specified minimum dollar amount of the shares of the Funds and/or
other funds in the Midwest Group during a specific period of time. Such bonuses
or incentives may include financial assistance to dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising, sales campaigns and other dealer-sponsored programs or
events.
Class A Shares
Class A shares of each Fund are sold on a continuous basis at the public
offering price next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Adviser by 5:00 p.m., Eastern time, that day
are confirmed at the public offering price determined as of the close of the
regular session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Adviser by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by MGF
Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's public
offering price. Direct investments received by MGF Service Corp. after 4:00
p.m., Eastern time, and orders received from dealers after 5:00 p.m., Eastern
time, are confirmed at the public offering price next determined on the
following business day.
The public offering price of Class A shares is the next determined net asset
value per share plus a sales load as shown in the following table.
Dealer
Reallowance
Sales Load as % of: as % of
Public Net Public
Offering Amount Offering
Amount of Investment Price Invested Price
- -------------------- ------- -------- ------
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None* None*
* There is no front-end sales load on purchases of $1 million or more but a
contingent deferred sales load of .75% may apply with respect to Class A
shares if a commission was paid by the Adviser to a participating
unaffiliated dealer and the shares are redeemed within twelve months from
the date of purchase.
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Under certain circumstances, the Adviser may increase or decrease the
reallowance to dealers. Dealers engaged in the sale of shares of the Funds may
be deemed to be underwriters under the Securities Act of 1933. The Adviser
retains the entire sales load on all direct initial investments in the Funds and
on all investments in accounts with no designated dealer of record.
For initial purchases of Class A shares of the Funds of $1,000,000 or
more made after October 1, 1995 and subsequent purchases further increasing the
size of the account, a dealer's commission of .75% of the purchase amount may be
paid by the Adviser to participating unaffiliated dealers through whom such
purchases are effected. In determining a dealer's eligibility for such
commission, purchases of Class A shares of the Funds may be aggregated with
concurrent purchases of Class A shares of other Midwest Group funds. Dealers
should contact the Adviser concerning the applicability and calculation of the
dealer's commission in the case of combined purchases. An exchange from other
Midwest Group funds will not qualify for payment of the dealer's commission,
unless such exchange is from a Midwest Group fund with assets as to which a
dealer's commission or similar payment has not been previously paid. Redemptions
of Class A shares may result in the imposition of a contingent deferred sales
load if the dealer's commission described in this paragraph was paid in
connection with the purchase of such shares. See "Contingent Deferred Sales
Load for Certain Purchases of Class A Shares" below.
REDUCED SALES LOAD. A "purchaser" (defined below) may use the Right of
Accumulation to combine the cost or current net asset value (whichever is
higher) of his existing Class A shares of the load funds distributed by the
Adviser with the amount of his current purchases in order to take advantage of
the reduced sales loads set forth in the table above. Purchases made in any load
fund distributed by the Adviser pursuant to a Letter of Intent may also be
eligible for the reduced sales loads. The minimum initial investment under a
Letter of Intent is $10,000. The load funds currently distributed by the Adviser
are listed in the Exchange Privilege section of this Prospectus. Shareholders
should contact MGF Service Corp. for information about the Right of Accumulation
and Letter of Intent.
PURCHASES AT NET ASSET VALUE. You may purchase Class A shares of either
Fund at net asset value when the payment for your investment represents the
proceeds from the redemption of shares of any other mutual fund which has a
front-end sales load and is not distributed by the Adviser. Your investment will
qualify for this provision if the purchase price of the shares of the other fund
included a sales load and the redemption occurred within one year of the
purchase of such shares and no more than
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sixty days prior to your purchase of Class A shares of the Funds. To make a
purchase at net asset value pursuant to this provision, you must submit
photocopies of the confirmations (or similar evidence) showing the purchase and
redemption of shares of the other fund. Your payment may be made with the
redemption check representing the proceeds of the shares redeemed, endorsed to
the order of the applicable Fund. The redemption of shares of the other fund is,
for federal income tax purposes, a sale on which you may realize a gain or loss.
These provisions may be modified or terminated at any time. Contact your
securities dealer or the Trust for further information.
Banks, bank trust departments and savings and loan associations, in
their fiduciary capacity or for their own accounts, may also purchase Class A
shares of the Funds at net asset value. To the extent permitted by regulatory
authorities, a bank trust department may charge fees to clients for whose
account it purchases shares at net asset value. Federal and state credit unions
may also purchase Class A shares at net asset value.
In addition, Class A shares of the Funds may be purchased at net asset
value by broker-dealers who have a sales agreement with the Adviser, and their
registered personnel and employees, including members of the immediate families
of such registered personnel and employees.
Clients of investment advisers and financial planners may also purchase
Class A shares of the Funds at net asset value if their investment adviser or
financial planner has made arrangements to permit them to do so with the Trust
and the Adviser. The investment adviser or financial planner must notify MGF
Service Corp. that an investment qualifies as a purchase at net asset value.
Trustees, directors, officers and employees of the Trust, the Adviser
or MGF Service Corp., including members of the immediate family of such
individuals and employee benefit plans established by such entities, may also
purchase Class A shares of the Funds at net asset value.
CONTINGENT DEFERRED SALES LOAD FOR CERTAIN PURCHASES OF CLASS A SHARES.
A contingent deferred sales load is imposed upon certain redemptions of Class A
shares of the Funds (or shares into which such Class A shares were exchanged)
purchased at net asset value in amounts totaling $1 million or more, if the
dealer's commission described above was paid by the Adviser and the shares are
redeemed within twelve months from the date of purchase. The contingent deferred
sales load will be paid to the Adviser and will be equal to .75% of the lesser
of (1) the net
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asset value at the time of purchase of the Class A shares being redeemed or (2)
the net asset value of such Class A shares at the time of redemption. In
determining whether the contingent deferred sales load is payable, it is assumed
that shares not subject to the contingent deferred sales load are the first
redeemed followed by other shares held for the longest period of time. The
contingent deferred sales load will not be imposed upon shares representing
reinvested dividends or capital gains distributions, or upon amounts
representing share appreciation. If a purchase of Class A shares is subject to
the contingent deferred sales load, the investor will be so notified on the
confirmation for such purchase.
Redemptions of such Class A shares of the Funds held for at least 12
months will not be subject to the contingent deferred sales load and an exchange
of such Class A shares into another Midwest Group fund is not treated as a
redemption and will not trigger the imposition of the contingent deferred sales
load at the time of such exchange. A fund will "tack" the period for which such
Class A shares being exchanged were held onto the holding period of the acquired
shares for purposes of determining if a contingent deferred sales load is
applicable in the event that the acquired shares are redeemed following the
exchange; however, the period of time that the redemption proceeds of such Class
A shares are held in a money market fund will not count toward the holding
period for determining whether a contingent deferred sales load is applicable.
See "Exchange Privilege".
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Adviser may
require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
ADDITIONAL INFORMATION. For purposes of determining the applicable
sales load and for purposes of the Letter of Intent and Right of Accumulation
privileges, a purchaser includes an individual, his spouse and their children
under the age of 21, purchasing shares for his or their own account; or a
trustee or other fiduciary purchasing shares for a single fiduciary account
although more than one beneficiary is involved; or employees of a common
employer, provided that economies of scale are realized through remittances from
a single source and quarterly confirmation of such purchases; or an organized
group, provided that the purchases are made through a central administration, or
a single dealer, or by other means which result in economy of sales effort or
expense. Contact MGF Service Corp. for additional information concerning
purchases at net asset value or at reduced sales loads.
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Class C Shares
Class C shares of the Funds are sold on a continuous basis at the net
asset value next determined after receipt of a purchase order by the Trust.
Purchase orders received by dealers prior to 4:00 p.m., Eastern time, on any
business day and transmitted to the Adviser by 5:00 p.m., Eastern time, that day
are confirmed at the net asset value determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Adviser by 5:00 p.m., Eastern time. Dealers may charge a
fee for effecting purchase orders. Direct purchase orders received by MGF
Service Corp. by 4:00 p.m., Eastern time, are confirmed at that day's net asset
value. Direct investments received by MGF Service Corp. after 4:00 p.m., Eastern
time, and orders received from dealers after 5:00 p.m., Eastern time, are
confirmed at the net asset value next determined on the following business day.
A contingent deferred sales load is imposed on Class C shares if an
investor redeems an amount which causes the current value of the investor's
account to fall below the total dollar amount of purchase payments subject to
the deferred sales load, except that no such charge is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or to the extent the amount redeemed is derived from
increases in the value of the account above the amount of purchase payments
subject to the deferred sales load.
Whether a contingent deferred sales load is imposed will depend on the
amount of time since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the contingent deferred sales load
according to the following schedule:
Year Since Purchase Contingent Deferred
Payment was Made Sales Load
First Year 1%
Thereafter None
In determining whether a contingent deferred sales load is payable, it
is assumed that the purchase payment from which the redemption is made is the
earliest purchase payment (from which a redemption or exchange has not already
been effected). If the earliest purchase from which a redemption has not yet
been effected was made within one year before the redemption, then a deferred
sales load at the rate of 1% will be imposed.
The following example will illustrate the operation of the
contingent deferred sales load. Assume that an individual opens
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an account and purchases 1,000 shares at $10 per share and that six months later
the net asset value per share is $12 and, during such time, the investor has
acquired 50 additional shares through reinvestment of distributions. If at such
time the investor should redeem 450 shares (proceeds of $5,400), 50 shares will
not be subject to the load because of dividend reinvestment. With respect to the
remaining 400 shares, the load is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$4,000 of the $5,400 redemption proceeds will be charged the load. At the rate
of 1%, the contingent deferred sales load would be $40. In determining whether
an amount is available for redemption without incurring a deferred sales load,
the purchase payments made for all Class C shares in the shareholder's account
are aggregated, and the current value of all such shares is aggregated.
All sales loads imposed on redemptions are paid to the Adviser. The
Adviser intends to pay a commission of 1% of the purchase amount to
participating brokers at the time the investor purchases Class C shares.
The contingent deferred sales load is currently waived for any partial
or complete redemption following death or disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder (including one who owns the
shares with his or her spouse as a joint tenant with rights of survivorship)
from an account in which the deceased or disabled is named. The Adviser may
require documentation prior to waiver of the charge, including death
certificates, physicians' certificates, etc.
SHAREHOLDER SERVICES
Contact MGF Service Corp. (Nationwide call toll-free 800- 543-0407; in
Cincinnati call 629-2050) for additional information about the shareholder
services described below.
Automatic Withdrawal Plan
-------------------------
If the shares in your account have a value of at least $5,000, you may
elect to receive, or may designate another person to receive, monthly or
quarterly payments in a specified amount of not less than $50 each. There is no
charge for this service. Purchases of additional Class A shares of the Funds
while the plan is in effect are generally undesirable because a sales load is
incurred whenever purchases are made.
Tax-Deferred Retirement Plans
-----------------------------
Shares of either Fund are available for purchase in connection with the
following tax-deferred retirement plans:
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-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for
individuals and their non-employed spouses
-- Qualified pension and profit-sharing plans for
employees, including those profit-sharing plans with a
401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
Direct Deposit Plans
--------------------
Shares of either Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans enable a
shareholder to have all or a portion of his or her payroll or social security
checks transferred automatically to purchase shares of the Funds.
Automatic Investment Plan
-------------------------
You may make automatic monthly investments in either Fund from your
bank, savings and loan or other depository institution account. The minimum
initial and subsequent investments must be $50 under the plan. MGF Service Corp.
pays the costs associated with these transfers, but reserves the right, upon
thirty days' written notice, to make reasonable charges for this service. Your
depository institution may impose its own charge for debiting your account which
would reduce your return from an investment in the Funds.
Reinvestment Privilege
----------------------
If you have redeemed shares of either Fund, you may reinvest all or
part of the proceeds without any additional sales load. This reinvestment must
occur within ninety days of the redemption and the privilege may only be
exercised once per year.
HOW TO REDEEM SHARES
You may redeem shares of either Fund on each day that the Trust is open
for business by sending a written request to MGF Service Corp. The request must
state the number of shares or the dollar amount to be redeemed and your account
number. The request must be signed exactly as your name appears on the Trust's
account records. If the shares to be redeemed have a value of $25,000 or more,
your signature must be guaranteed by any eligible guarantor institution,
including banks, brokers and
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<PAGE>
dealers, municipal securities brokers and dealers, government securities brokers
and dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations.
You may also redeem shares by placing a wire redemption request through
a securities broker or dealer. Unaffiliated broker-dealers may impose a fee on
the shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
If your instructions request a redemption by wire, you will be charged
an $8 processing fee by the Funds' Custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly
in your account with a commercial bank or other depository institution via an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact MGF Service Corp. for more information about ACH
transactions.
If a certificate for the shares was issued, it must be delivered to MGF
Service Corp., or the dealer in the case of a wire redemption, duly endorsed or
accompanied by a duly endorsed stock power, with the signature guaranteed by any
of the eligible guarantor institutions outlined above.
A contingent deferred sales load may apply to a redemption
of Class C shares or to a redemption of certain Class A shares
purchased at net asset value. See "How to Purchase Shares."
Shares are redeemed at their net asset value per share next determined
after receipt by MGF Service Corp. of a proper redemption request in the form
described above, less any applicable contingent deferred sales load. Payment is
normally made within three business days after tender in such form, provided
that payment in redemption of shares purchased by check will be effected only
after the check has been collected, which may take up to fifteen days from the
purchase date. To eliminate this delay, you may purchase shares of the Funds by
certified check or wire.
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<PAGE>
The Trust and MGF Service Corp. will consider all written and verbal
instructions as authentic and will not be responsible for the processing of
exchange instructions received by telephone which are reasonably believed to be
genuine or the delivery or transmittal of the redemption proceeds by wire. The
affected shareholders will bear the risk of any such loss. The privilege of
exchanging shares by telephone is automatically available to all shareholders.
The Trust or MGF Service Corp., or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or MGF
Service Corp. do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
At the discretion of the Trust or MGF Service Corp., corporate
investors and other associations may be required to furnish an appropriate
certification authorizing redemptions to ensure proper authorization. The Trust
reserves the right to require you to close your account if at any time the value
of your shares is less than $1,000 (based on actual amounts invested including
any sales load paid, unaffected by market fluctuations), or $250 in the case of
tax-deferred retirement plans, or such other minimum amount as the Trust may
determine from time to time. After notification to you of the Trust's intention
to close your account, you will be given thirty days to increase the value of
your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
EXCHANGE PRIVILEGE
Shares of either Fund and of any other fund distributed by the Adviser
may be exchanged for each other.
Class A shares of the Funds which are not subject to a contingent
deferred sales load may be exchanged for Class A shares of any other fund and
for shares of any other fund which offers only one class of shares (provided
such shares are not subject to a contingent deferred sales load). A sales load
will be imposed equal to the excess, if any, of the sales load rate applicable
to the shares being acquired over the sales load rate, if any, previously paid
on the shares being exchanged.
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<PAGE>
Class C shares of the Funds, as well as Class A shares of the Funds
subject to a contingent deferred sales load, may be exchanged, on the basis of
relative net asset value per share, for shares of any other fund which imposes a
contingent deferred sales load and for shares of any fund which is a money
market fund. A fund will "tack" the period for which the shares being exchanged
were held onto the holding period of the acquired shares for purposes of
determining if a contingent deferred sales load is applicable in the event that
the acquired shares are redeemed following the exchange. The period of time that
shares are held in a money market fund will not count toward the holding period
for determining whether a contingent deferred sales load is applicable.
The following are the funds of the Midwest Group of Funds currently
offered to the public. Funds which may be subject to a front-end or contingent
deferred sales load are indicated by an asterisk.
Midwest Group Tax Free Trust Midwest Strategic Trust
Tax-Free Money Fund *Equity Fund
Ohio Tax-Free Money Fund *Utility Fund
California Tax-Free Money Fund *U.S. Government Securities Fund
Royal Palm Florida Tax-Free *Treasury Total Return Fund
Money Fund
Michigan Tax-Free Money Fund Midwest Trust
*Tax-Free Intermediate Term Short Term Government Income Fund
Fund Institutional Government Income Fund
*Ohio Insured Tax-Free Fund *Intermediate Term Government Income Fund
*Adjustable Rate U.S. Government
Securities Fund
*Global Bond Fund
You may request an exchange by sending a written request to MGF Service
Corp. The request must be signed exactly as your name appears on the Trust's
account records. Exchanges may also be requested by telephone. If you are unable
to execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail or by visiting the
Trust's offices at 312 Walnut Street, 21st Floor, Cincinnati, Ohio 45202. An
exchange will be effected at the next determined net asset value (or offering
price, if sales load is applicable) after receipt of a request by MGF Service
Corp.
Exchanges may only be made for shares of funds then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to shareholders. An exchange
results in a sale of fund shares, which may cause you to recognize a
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<PAGE>
capital gain or loss. Before making an exchange, contact MGF Service Corp. to
obtain a current prospectus for any of the other funds in the Midwest Group and
more information about exchanges among the Midwest Group of Funds.
DIVIDENDS AND DISTRIBUTIONS
Each Fund expects to distribute substantially all of its net investment
income, if any, on a quarterly basis. Each Fund expects to distribute any net
realized long-term capital gains at least once each year. Management will
determine the timing and frequency of the distributions of any net realized
short-term capital gains.
Distributions are paid according to one of the following options:
Share Option - income distributions and capital gains
distributions reinvested in additional
shares.
Income Option - income distributions and short-term capital
gains distributions paid in cash; long-term
capital gains distributions reinvested in
additional shares.
Cash Option - income distributions and capital
gains distributions paid in cash.
You should indicate your choice of option on your application. If no option is
specified on your application, distributions will automatically be reinvested in
additional shares. All distributions will be based on the net asset value in
effect on the payable date.
If you select the Income Option or the Cash Option and the U.S. Postal
Service cannot deliver your checks or if your checks remain uncashed for six
months, your dividends may be reinvested in your account at the then-current net
asset value and your account will be converted to the Share Option.
An investor who has received in cash any dividend or capital gains
distribution from either Fund may return the distribution within thirty days of
the distribution date to MGF Service Corp. for reinvestment at the net asset
value next determined after its return. The investor or his dealer must notify
MGF Service Corp. that a distribution is being reinvested pursuant to this
provision.
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<PAGE>
TAXES
Each Fund has qualified in all prior years and intends to continue to
qualify for the special tax treatment afforded a "regulated investment company"
under Subchapter M of the Internal Revenue Code so that it does not pay federal
taxes on income and capital gains distributed to shareholders. Each Fund intends
to distribute substantially all of its net investment income and any net
realized capital gains to its shareholders. Distributions of net investment
income as well as from net realized short-term capital gains, if any, are
taxable as ordinary income. Dividends distributed by the Funds from net
investment income may be eligible, in whole or in part, for the dividends
received deduction available to corporations. Distributions of net realized
long-term capital gains are taxable as long-term capital gains regardless of how
long you have held your Fund shares. Redemptions and exchanges of shares of the
Funds are taxable events on which a shareholder may realize a gain or loss.
The Funds will mail to each of their shareholders a statement
indicating the amount and federal income tax status of all distributions made
during the year. In addition to federal taxes, shareholders of the Funds may be
subject to state and local taxes on distributions. Shareholders should consult
their tax advisors about the tax effect of distributions and withdrawals from
the Funds and the use of the Automatic Withdrawal Plan and the Exchange
Privilege. The tax consequences described in this section apply whether
distributions are taken in cash or reinvested in additional shares.
OPERATION OF THE FUNDS
The Funds are diversified series of Midwest Strategic Trust, an
open-end management investment company organized as a Massachusetts business
trust on November 18, 1982. The Board of Trustees supervises the business
activities of the Trust. Like other mutual funds, the Trust retains various
organizations to perform specialized services for the Funds.
The Trust retains Midwest Group Financial Services, Inc., 312 Walnut
Street, Cincinnati, Ohio (the "Adviser"), to manage the Funds' investments and
their business affairs. The Adviser was organized in 1974 and is also the
investment adviser to two other series of the Trust, five series of Midwest
Trust and seven series of Midwest Group Tax Free Trust. The Adviser is a
subsidiary of Leshner Financial, Inc., of which Robert H. Leshner is the
controlling shareholder. Each Fund pays the Adviser a fee equal to the annual
rate of .75% of the average value of its daily net assets up to $200 million;
.7% of such assets from $200 million to $500 million; and .5% of such assets in
excess of $500 million.
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<PAGE>
The Equity Fund is managed by a committee of the Adviser's portfolio
managers. Susan Flischel, Vice President-Investments of the Adviser, is
primarily responsible for managing the portfolio of the Utility Fund. Ms.
Flischel has been employed by the Adviser and affiliated companies in various
capacities since 1986 and has been managing the portfolio of the Utility Fund
since July 1993.
The Funds are responsible for the payment of all operating expenses,
including fees and expenses in connection with membership in investment company
organizations, brokerage fees and commissions, legal, auditing and accounting
expenses, expenses of registering shares under federal and state securities
laws, expenses related to the distribution of the Funds' shares (see
"Distribution Plans"), insurance expenses, taxes or governmental fees, fees and
expenses of the custodian, transfer agent and accounting and pricing agent of
the Funds, fees and expenses of members of the Board of Trustees who are not
interested persons of the Trust, the cost of preparing and distributing
prospectuses, statements, reports and other documents to shareholders, expenses
of shareholders' meetings and proxy solicitations, and such extraordinary or
non-recurring expenses as may arise, including litigation to which the Funds may
be a party and indemnification of the Trust's officers and Trustees with respect
thereto.
The Trust has retained MGF Service Corp., P.O. Box 5354, Cincinnati,
Ohio, a subsidiary of Leshner Financial, Inc., to serve as the Funds' transfer
agent, dividend paying agent and shareholder service agent.
MGF Service Corp. also provides accounting and pricing services to
the Funds. MGF Service Corp. receives a monthly fee from each Fund for
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable it to perform its duties.
In addition, MGF Service Corp. has been retained by the Adviser to
assist the Adviser in providing administrative services to the Funds. In this
capacity, MGF Service Corp. supplies executive, administrative and regulatory
services, supervises the preparation of tax returns, and coordinates the
preparation of reports to shareholders and reports to and filings with the
Securities and Exchange Commission and state securities authorities. The Adviser
(not the Funds) pays MGF Service Corp. a fee for these administrative services
equal to one-fourth of its advisory fee from the Funds.
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<PAGE>
The Adviser serves as principal underwriter for the Funds and, as
such, is the exclusive agent for the distribution of shares of the Funds. Robert
H. Leshner, Chairman and a director of the Adviser, is President and a Trustee
of the Trust. John F. Splain, Secretary and General Counsel of the Adviser, is
Secretary of the Trust.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its objective of seeking best
execution of portfolio transactions, the Adviser may give consideration to sales
of shares of the Funds as a factor in the selection of brokers and dealers to
execute portfolio transactions of the Funds. Subject to the requirements of the
Investment Company Act of 1940 and procedures adopted by the Board of Trustees,
the Funds may execute portfolio transactions through any broker or dealer and
pay brokerage commissions to a broker (i) which is an affiliated person of the
Trust, or (ii) which is an affiliated person of such person, or (iii) an
affiliated person of which is an affiliated person of the Trust or the Adviser.
Shares of each Fund have equal voting rights and liquidation rights.
Each Fund shall vote separately on matters submitted to a vote of the
shareholders except in matters where a vote of all series of the Trust in the
aggregate is required by the Investment Company Act of 1940 or otherwise. Each
class of shares of a Fund shall vote separately on matters relating to its plan
of distribution pursuant to Rule 12b-1 (see "Distribution Plans"). When matters
are submitted to shareholders for a vote, each shareholder is entitled to one
vote for each full share owned and fractional votes for fractional shares owned.
The Trust does not normally hold annual meetings of shareholders. The Trustees
shall promptly call and give notice of a meeting of shareholders for the purpose
of voting upon the removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the Investment Company Act
of 1940 in order to facilitate communications among shareholders.
DISTRIBUTION PLANS
CLASS A SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Funds have adopted a plan of distribution (the "Class A Plan")
under which Class A shares may directly incur or reimburse the Adviser for
certain distribution- related expenses, including payments to securities dealers
and others who are engaged in the sale of shares of the Funds and who may be
advising investors regarding the purchase, sale or retention of Fund shares;
expenses of maintaining personnel who
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<PAGE>
engage in or support distribution of shares or who render shareholder support
services not otherwise provided by MGF Service Corp.; expenses of formulating
and implementing marketing and promotional activities, including direct mail
promotions and mass media advertising; expenses of preparing, printing and
distributing sales literature and prospectuses and statements of additional
information and reports for recipients other than existing shareholders of the
Funds; expenses of obtaining such information, analyses and reports with respect
to marketing and promotional activities as the Trust may, from time to time,
deem advisable; and any other expenses related to the distribution of the Funds'
Class A shares.
Pursuant to the Class A Plan, the Funds may make payments to dealers
and other persons, including the Adviser and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Class A shares. For the
fiscal year ended March 31, 1996, Class A shares of the Utility Fund paid
$41,297 to the Adviser to reimburse it for payments made to dealers and other
persons who may be advising shareholders regarding the retention of shares of
the Fund.
The annual limitation for payment of expenses pursuant to the Class A
Plan is .25% of each Fund's average daily net assets allocable to Class A
shares. Unreimbursed expenditures will not be carried over from year to year. In
the event the Class A Plan is terminated by a Fund in accordance with its terms,
the Fund will not be required to make any payments for expenses incurred by the
Adviser after the date the Class A Plan terminates.
CLASS C SHARES. Pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Funds have adopted a plan of distribution (the "Class C Plan")
which provides for two categories of payments. First, the Class C Plan provides
for the payment to the Adviser of an account maintenance fee, in an amount equal
to an annual rate of .25% of a Fund's average daily net assets allocable to
Class C shares, which may be paid to other dealers based on the average value of
Fund shares owned by clients of such dealers. In addition, the Class C shares
may directly incur or reimburse the Adviser in an amount not to exceed .75% per
annum of a Fund's average daily net assets allocable to Class C shares for
expenses incurred in the distribution and promotion of the Fund's Class C
shares, including payments to securities dealers and others who are engaged in
the sale of shares of the Funds and who may be advising investors regarding the
purchase, sale or retention of such shares; expenses of maintaining personnel
who engage in or support distribution of shares or who render shareholder
support services not otherwise provided by MGF Service Corp.; expenses of
formulating and implementing marketing and promotional
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<PAGE>
activities, including direct mail promotions and mass media advertising;
expenses of preparing, printing and distributing sales literature and
prospectuses and statements of additional information and reports for recipients
other than existing shareholders of the Funds; expenses of obtaining such
information, analyses and reports with respect to marketing and promotional
activities as the Trust may, from time to time, deem advisable; and any other
expenses related to the distribution of the Funds' Class C shares.
Pursuant to the Class C Plan, the Funds may make payments to dealers
and other persons, including the Adviser and its affiliates, who may be advising
investors regarding the purchase, sale or retention of Class C shares. For the
fiscal year ended March 31, 1996, Class C shares of the Utility Fund and the
Equity Fund paid $21,703 and $5,308, respectively, to the Adviser to reimburse
it for payments made to dealers and other persons who may be advising
shareholders regarding the retention of shares of the Funds.
Unreimbursed expenditures will not be carried over from year to year.
In the event the Class C Plan is terminated by a Fund in accordance with its
terms, the Fund will not be required to make any payments for expenses incurred
by the Adviser after the date the Class C Plan terminates. The Adviser may make
payments to dealers and other persons in an amount up to .75% per annum of the
average value of Class C shares owned by their clients, in addition to the .25%
account maintenance fee described above.
GENERAL. Pursuant to the Plans, the Funds may also make payments to
banks or other financial institutions that provide shareholder services and
administer shareholder accounts. The Glass-Steagall Act prohibits banks from
engaging in the business of underwriting, selling or distributing securities.
Although the scope of this prohibition under the Glass-Steagall Act has not been
clearly defined by the courts or appropriate regulatory agencies, management of
the Trust believes that the Glass- Steagall Act should not preclude a bank from
providing such services. However, state securities laws on this issue may differ
from the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. If a
bank were prohibited from continuing to perform all or a part of such services,
management of the Trust believes that there would be no material impact on the
Funds or their shareholders. Banks may charge their customers fees for offering
these services to the extent permitted by applicable regulatory authorities, and
the overall return to those shareholders availing themselves of the bank
services will be lower than to those shareholders who do not. The Funds may from
time to time purchase securities issued by banks which provide such services;
however, in selecting investments for the Funds, no preference will be shown for
such securities.
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<PAGE>
The National Association of Securities Dealers, in its Rules of Fair
Practice, places certain limitations on asset-based sales charges of mutual
funds. These Rules require fund-level accounting in which all sales charges -
front-end load, 12b-1 fees or contingent deferred load - terminate when a
percentage of gross sales is reached.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
On each day that the Trust is open for business, the share price (net
asset value) of Class C shares and the public offering price (net asset value
plus applicable sales load) of Class A shares of each Fund is determined as of
the close of the regular session of trading on the New York Stock Exchange,
currently 4:00 p.m., Eastern time. The Trust is open for business on each day
the New York Stock Exchange is open for business and on any other day when there
is sufficient trading in a Fund's investments that its net asset value might be
materially affected. The net asset value per share of each Fund is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by the
total number of shares outstanding of the Fund, rounded to the nearest cent.
Each Fund's portfolio securities are valued as follows: (i) securities
which are traded on stock exchanges are valued at the last sale price as of the
close of the regular session of trading on the New York Stock Exchange on the
day the securities are being valued, or, if not traded on a particular day, at
the closing bid price, (ii) securities traded in the over-the-counter market are
valued at the last sale price (or, if the last sale price is not readily
available, at the last bid price as quoted by brokers that make markets in the
securities) as of the close of the regular session of trading on the New York
Stock Exchange on the day the securities are being valued, (iii) securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market and (iv)
securities (and other assets) for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees. The net asset value per share of
each Fund will fluctuate with the value of the securities it holds.
PERFORMANCE INFORMATION
From time to time, each Fund may advertise its "average annual total
return." Each Fund may also advertise "yield." Both yield and average annual
total return figures are based on
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<PAGE>
historical earnings and are not intended to indicate future performance. Total
return and yield are computed separately for Class A and Class C shares. The
yield of Class A shares is expected to be higher than the yield of Class C
shares due to the higher distribution fees imposed on Class C shares.
The "average annual total return" of a Fund refers to the average
annual compounded rates of return over the most recent 1, 5 and 10 year periods
or, where the Fund has not been in operation for such period, over the life of
the Fund (which periods will be stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment. The calculation of "average annual total
return" assumes the reinvestment of all dividends and distributions and, for
Class A shares, the deduction of the current maximum sales load from the initial
investment. A Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from "average annual total return."
A nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A nonstandardized quotation of
total return may also indicate average annual compounded rates of return over
periods other than those specified for "average annual total return." These
nonstandardized returns do not include the effect of the applicable sales load
which, if included, would reduce total return. A nonstandardized quotation of
total return will always be accompanied by a Fund's "average annual total
return" as described above.
The "yield" of a Fund is computed by dividing the net investment income
per share earned during a thirty-day (or one month) period stated in the
advertisement by the maximum public offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The yield formula assumes that net investment income is earned and reinvested at
a constant rate and annualized at the end of a six-month period.
From time to time, the Funds may advertise their performance rankings
as published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc. ("Lipper"), or by publications of general
interest such as Forbes, Money, The Wall Street Journal, Business Week,
Barron's, Fortune or Morningstar Mutual Fund Values. The Funds may also compare
their performance to that of other selected mutual funds, averages of the other
mutual funds within their categories as determined by Lipper, or recognized
indicators such as the Dow Jones Industrial Average, the Standard & Poor's 500
Stock Index and the Standard & Poor's Utility Index. In connection with a
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<PAGE>
ranking, the Funds may provide additional information, such as the particular
category of funds to which the ranking relates, the number of funds in the
category, the criteria upon which the ranking is based, and the effect of fee
waivers and/or expense reimbursements, if any. The Funds may also present their
performance and other investment characteristics, such as volatility or a
temporary defensive posture, in light of the Adviser's view of current or past
market conditions or historical trends.
Further information about the Funds' performance is contained in the
Trust's annual report which can be obtained by shareholders at no charge by
calling MGF Service Corp. (Nationwide call toll-free 800-543-0407; in Cincinnati
call 629- 2050) or by writing to the Trust at the address on the front of this
Prospectus.
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<PAGE>
<TABLE>
<CAPTION>
Midwest Strategic Trust ACCOUNT NO. ____________________
Account Application (Check appropriate Fund) (For Fund Use
Only)
<S> <C> <C> <C>
[] Equity Fund Class A Shares (29) $_________________ FOR BROKER/DEALER USE ONLY
[] Equity Fund Class C Shares (28) Firm Name: ____________________________
[] Utility Fund Class A Shares (25) $_________________ Home Office Address: ___________________
[] Utility Fund Class C Shares (20) Branch Address: ________________________
Rep Name & No.: ________________________
Please mail account application to: Rep Signature: _________________________
MGF Service Corp.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
========================================================================================================================
[] Check or draft enclosed payable to the applicable Fund designated above.
[] Bank Wire From: __________________________________________________________________________________________________________
[] Exchange From:
______________________________________________________________________________________________________________
(Fund Name) (Fund Account Number)
Account Name S.S. #/Tax l.D.#
_________________________________________________________________________________________ _____________________________
Name of Individual, Corporation, Organization, or Minor, etc. (In case of custodial account
please list minor's S.S.#)
_______________________________________________________________________________________________ Citizenship: [] U.S.
Name of Joint Tenant, Partner, Custodian [] Other
Address Phone
_____________________________________________________________________________________________ ( )-----------------
Street or P.O. Box Business Phone
____________________________________________________________________________________________ ( )--------------
City State Zip Home Phone
Check Appropriate Box: [] Individual [] Joint Tenant (Right of survivorship presumed)
[] Partnership [] Corporation [] Trust [] Custodial [] Non-Profit [] Other
Occupation and Employer
Name/Address______________________________________________________________________________________________
Are you an associated person of an NASD member? [] Yes [] No
========================================================================================================================
TAXPAYER IDENTIFICATION NUMBER -- Under penalties of perjury I certify that the Taxpayer Identification Number listed
above is my correct number. Check box if appropriate:
[] I am exempt from backup withholding under the provisions of section 3406(a)(1)(c) of the Internal Revenue Code; or I am not
subject to backup withholding because I have not been notified that I am subject to backup withholding as a result of a failure
to report all interest or dividends; or the Internal Revenue Service has notified me that I am no longer subject to backup
withholding.
[] I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me and I have mailed or
delivered an application to receive a Taxpayer Identification Number to the Internal Revenue Service Center or Social Security
Administration Office. I understand that if I do not provide a Taxpayer Identification Number within 60 days that 31% of all
reportable payments will be withheld until I provide a number.
======================================================================================================================
DISTRIBUTIONS (If no election is checked the SHARE OPTION will be assigned.)
[] Share Option -- Income distributions and capital gains distributions automatically reinvested in additional
shares.
[] Income Option -- Income distributions and short term capital gains distributions paid in cash, long term capital
gains distributions reinvested in additional shares.
[] Cash Option -- Income distributions and capital gains distributions paid in cash.
========================================================================================================================
REDUCED SALES CHARGES (CLASS A SHARES ONLY)
Right of Accumulation: I apply for Right of Accumulation subject to the Agent's confirmation of the following holdings of
eligible load funds of the Midwest Group of Funds.
Account Number/Name Account Number/Name
_______________________________________________________ _______________________________________________________
_______________________________________________________ _______________________________________________________
Letter of Intent: (Complete the Right of Accumulation section if related accounts are being applied to your Letter of Intent.)
[] l agree to the Letter of Intent in the current Prospectus of Midwest Stategic Trust. Although I am not obligated to
purchase, and the Trust is not obligated to sell, I intend to invest over a 13 month period beginning _________________
19_______
(Purchase Date of not more than 90 days prior to this Letter) an aggregate amount in the load funds of the Midwest Group of
Funds at least equal to (check appropriate box):
[] $100,000 [] $250,000 [] $500,000 [] $1,000,000
========================================================================================================================
SIGNATURES
By signature below each investor certifies that he has received a copy of the Funds' current Prospectus, that he is of legal
age, and that he has full authority and legal capacity for himself or the organization named below, to make this investment and
to use the options selected above. The investor appoints MGF Service Corp. as his agent to enter orders for shares whether by
direct purchase or exchange, to receive dividends and distributions for automatic reinvestment in additional shares of the
Funds for credit to the investor's account and to surrender for redemption shares held in the investor's account in accordance
with any of the procedures elected above or for payment of service charges incurred by the investor. The investor further
agrees that MGF Service Corp. can cease to act as such agent upon ten days' notice in writing to the investor at the address
contained in this Application. The investor hereby ratifies any instructions given pursuant to this Application and for himself
and his successors and assigns does hereby release MGF Service Corp., Midwest Strategic Trust, Midwest Group Financial
Services, Inc., and their respective officers, employees, agents and affiliates from any and all liability in the performance
of the acts instructed herein provided that such entities have exercised due care to determine that the instructions are
genuine.
__________________________________________________ ___________________________________________________
Signature of Individual Owner, Corporate Officer,
Trustee, etc. Signature of Joint Owner, if Any
___________________________________________________ ____________________________________________________
Title of Corporate Officer, Trustee, etc. Date
NOTE: Corporations, trusts and other organizations must complete the resolution form on the reverse side.
Unless otherwise specified, each joint owner shall have full authority to act on behalf of the account.
========================================================================================
AUTOMATIC INVESTMENT PLAN (Complete for Investments Into the Fund(s))
The Automatic Investment Plan is available for all established accounts of Midwest Strategic Trust. There is no charge for this
service, and it offers the convenience of automatic investing on a regular basis. The minimum investment is $50.00 per month.
For an account that is opened by using this Plan, the minimum initial and subsequent investments must be $50.00. Though a
continuous program of 12 monthly investments is recommended, the Plan may be discontinued by the shareholder at any time.
Please invest $ ______________ per month in the (check the appropriate Fund.) ABA Routing Number__________________________
[] Equity Fund [] Utility Fund FI Account Number________________________________
[] Checking Account [] Savings Account
- ----------------------------------------------------------------------
Name of Financial Institution (FI) Please make my automatic investment on:
[] the last business day of each month
_________________________________________________________________ [] the 15th day of each month
City State [] both the 15th and last business day
X______________________________________________________ X__________________________________________________
(Signature of Depositor EXACTLY as it appears on FI Records) (Signature of Joint Tenant - if any)
(Joint Signatures are required when bank account is in joint names. Please sign exactly as signature appears on your FI's
records.)
Please attach a voided check for the Automatic Investment Plan.
Indemnification to Depositor's Bank
In consideration of your participation in a plan which MGF Service Corp. ("MGF") has put into effect, by which amounts,
determined by your depositor, payable to the applicable Fund designated above, for purchase of shares of said Fund, are
collected by MGF, MGF hereby agrees:
MGF will indemnify and hold you harmless from any liability to any person or persons whatsoever arising out of the payment
by you of any amount drawn by the Funds to their own order on the account of your depositor or from any liability to any person
whatsoever arising out of the dishonor by you whether with or without cause or intentionally or inadvertently, of any such
checks. MGF will defend, at its own cost and expense, any action which might be brought against you by any person or persons
whatsoever because of your actions taken pursuant to the foregoing request or in any manner arising by reason of your
participation in this arrangement. MGF will refund to you any amount erroneously paid by you to the Funds on any such check if
the claim for the amount of such erroneous payment is made by you within six (6) months from the date of such erroneous
payment; your participation in this arrangement and that of the Funds may be terminated by thirty (30) days written notice from
either party to the other.
========================================================================================================================
AUTOMATIC WITHDRAWAL PLAN (Complete for Withdrawals from the Fund(s))
This is an authorization for you to withdraw $_________ from my mutual fund account beginning the last business day of the
month of __________________.
Please Indicate Withdrawal Schedule (Check One):
[] Monthly -- Withdrawals will be made on the last business day of each month.
[] Quarterly -- Withdrawals will be made on or about 3/31, 6/30, 9/30 and 12/31.
[] Annually -- Please make withdrawals on the last business day of the month of:_____________________.
Please Select Payment Method (Check One):
[] Exchange: Please exchange the withdrawal proceeds into another Midwest account number:_ _-- _ _ _ _--_
[] Check: Please mail a check for my withdrawal proceeds to the mailing address on this account.
[] ACH Transfer: Please send my withdrawal proceeds via ACH transfer to my bank checking or savings account as indicated below.
I understand that the transfer will be completed in two to three business days and that there is no charge.
[] Bank Wire: Please send my withdrawal proceeds via bank wire, to the account indicated below. I understand that the wire will
be completed in one business day and that there is an $8.00 fee.
Please attach a voided check for ACH or bank wire
___________________________________________________________________________________________________________________________
Bank Name Bank Address
___________________________________________________________________________________________________________________________
Bank ABA# Account # Account Name
[] Send to special payee (other than applicant): Please mail a check for my withdrawal proceeds to the mailing address below:
Name of payee__________________________________________________________________________________________________________________
Please send to:________________________________________________________________________________________________________________
Street address City State Zip
========================================================================================================================
RESOLUTIONS
(This Section to be completed by Corporations, Trusts, and Other Organizations)
RESOLVED: That this corporation or organization become a shareholder of Midwest Strategic Trust (the Trust) and that
________________________________________________________________________________________________________________________
is (are) hereby authorized to complete and execute the Application on behalf of the corporation or organization and to take any
action for it as may be necessary or appropriate with respect to its shareholder account with the Trust, and it is
FURTHER RESOLVED: That any one of the above noted officers is authorized to sign any documents necessary or appropriate to
appoint MGF Service Corp. as redemption agent of the corporation or organization for shares of the applicable series of the
Trust, to establish or acknowledge terms and conditions governing the redemption of said shares and to otherwise implement the
privileges elected on the Application.
Certificate
I hereby certify that the foregoing resolutions are in conformity with the Charter and By-Laws or other empowering documents of
the
________________________________________________________________________________________________________________________
(Name of Organization)
incorporated or formed under the laws
of__________________________________________________________________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the organization or corporation duly called and held on
at which a quorum was present and acting throughout, and that the same are now in full force and effect. I further certify that
the following is (are) duly elected officer(s) of the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
Name Title
__________________________________________________ _________________________________________________________
___________________________________________________ _________________________________________________________
___________________________________________________ _________________________________________________________
Witness my hand and seal of the corporation or organization this_______________________day
of_______________________________________, 19_______
___________________________________________________ _________________________________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the Secretary or other recording officer is authorized to act by the above resolutions, this certificate must also be
signed by another officer.
</TABLE>
MIDWEST STRATEGIC TRUST
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4004
Nationwide (Toll-Free) 800-543-8721
Cincinnati 513-629-2000
Board of Trustees
Dale P. Brown
Gary W. Heldman
H. Jerome Lerner
Robert H. Leshner
Richard A. Lipsey
Donald J. Rahilly
Fred A. Rappoport
Oscar P. Robertson
Robert B. Sumerel
Officers
Robert H. Leshner, President
John F. Splain, Secretary
Mark J. Seger, Treasurer
Investment Adviser
MIDWEST GROUP FINANCIAL SERVICES, INC.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4004
Transfer Agent
MGF SERVICE CORP.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Shareholder Service
Nationwide: (Toll-Free) 800-543-0407
Cincinnati: 513-629-2050
Rate Line
Nationwide: (Toll-Free) 800-852-3809
Cincinnati: 513-579-0999
- 37 -
<PAGE>
TABLE OF CONTENTS
PAGE
EXPENSE INFORMATION.......................................................
FINANCIAL HIGHLIGHTS .....................................................
INVESTMENT OBJECTIVES AND POLICIES........................................
HOW TO PURCHASE SHARES....................................................
SHAREHOLDER SERVICES......................................................
HOW TO REDEEM SHARES......................................................
EXCHANGE PRIVILEGE .......................................................
DIVIDENDS AND DISTRIBUTIONS...............................................
TAXES.....................................................................
OPERATION OF THE FUNDS ...................................................
DISTRIBUTION PLANS ........................................................
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE.......................
PERFORMANCE INFORMATION...................................................
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Trust. This Prospectus does not constitute an offer by the Trust to sell
shares in any State to any person to whom it is unlawful for the Trust to make
such offer in such State.
- 38 -
<PAGE>
MIDWEST STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
U.S. Government Securities Fund
Treasury Total Return Fund
Utility Fund
Equity Fund
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of the applicable Fund of Midwest
Strategic Trust dated August 1, 1996. A copy of a Fund's Prospectus can be
obtained by writing the Trust at 312 Walnut Street, 21st Floor, Cincinnati, Ohio
45202-4094, or by calling the Trust nationwide toll-free 800-543-0407, or in
Cincinnati 629-2050.
- 1 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Midwest Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
TABLE OF CONTENTS
PAGE
THE TRUST.....................................................................3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS.................................4
INVESTMENT LIMITATIONS.......................................................17
TRUSTEES AND OFFICERS........................................................26
THE INVESTMENT ADVISER AND UNDERWRITER.......................................28
DISTRIBUTION PLANS. . . . ...................................................31
SECURITIES TRANSACTIONS......................................................33
PORTFOLIO TURNOVER...........................................................36
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE. . . . . . . ...........37
OTHER PURCHASE INFORMATION...................................................37
TAXES........................................................................39
REDEMPTION IN KIND...........................................................40
HISTORICAL PERFORMANCE INFORMATION...........................................40
PRINCIPAL SECURITY HOLDERS...................................................45
CUSTODIAN....................................................................46
AUDITORS.....................................................................46
MGF SERVICE CORP.............................................................46
ANNUAL REPORT. . . . . . . . . . . . . . . . . . . . . . ............... . 47
- 2 -
<PAGE>
THE TRUST
- ---------
Midwest Strategic Trust (the "Trust") was organized as a Massachusetts
business trust on November 18, 1982. The Trust currently offers four series of
shares to investors: the U.S. Government Securities Fund, the Treasury Total
Return Fund (formerly the Leshner Financial Treasury Total Return Fund), the
Utility Fund (formerly the Leshner Financial Utility Fund) and the Equity Fund
(formerly the Leshner Financial Equity Fund) (referred to individually as a
"Fund" and collectively as the "Funds"). Each Fund has its own investment
objective(s) and policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interest in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees determine to be fair and equitable. Generally, the
Trustees allocate such expenses on the basis of relative net assets or number of
shareholders. No shareholder is liable to further calls or to assessment by the
Trust without his express consent.
Both Class A shares and Class C shares of the Utility Fund and the
Equity Fund represent an interest in the same assets of such Fund, have the same
rights and are identical in all material respects except that (i) Class C shares
bear the expenses of higher distribution fees; (ii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable, including transfer agent fees attributable to a specific class of
shares, printing and postage expenses related to preparing and distributing
materials to current shareholders of a specific class, registration fees
incurred by a specific class of shares, the expenses of administrative personnel
and services required to support the shareholders of a specific class,
litigation or other legal expenses relating to a class of shares, Trustees' fees
or expenses incurred as a result of issues relating to a specific class of
shares and accounting fees and
- 3 -
<PAGE>
expenses relating to a specific class of shares; and (iii) each class has
exclusive voting rights with respect to matters relating to its own distribution
arrangements. The Board of Trustees may classify and reclassify the shares of a
Fund into additional classes of shares at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a
Massachusetts business trust could be deemed to have the same type of personal
liability for the obligations of the Trust as does a partner of a partnership.
However, numerous investment companies registered under the Investment Company
Act of 1940 have been formed as Massachusetts business trusts and the Trust is
not aware of an instance where such result has occurred. In addition, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or the Trustees.
The Trust Agreement also provides for the indemnification out of the Trust
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Moreover, it provides that the Trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Trust and satisfy any judgment thereon. As a
result, and particularly because the Trust assets are readily marketable and
ordinarily substantially exceed liabilities, management believes that the risk
of shareholder liability is slight and limited to circumstances in which the
Trust itself would be unable to meet its obligations. Management believes that,
in view of the above, the risk of personal liability is remote.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
- ---------------------------------------------
A more detailed discussion of some of the terms used and investment
policies described in the Prospectuses (see "Investment Objectives and
Policies") appears below:
GNMA Certificates. The term "GNMA Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Government National Mortgage Association and
backed by the full faith and credit of the United States.
1. The Life of GNMA Certificates. The average life of GNMA
Certificates is likely to be substantially less than the original maturity of
the mortgage pools underlying the GNMA Certificates due to prepayments,
refinancing and payments from foreclosures. Thus, the greatest part of principal
will usually be paid well before the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life
- 4 -
<PAGE>
of a particular issue of GNMA Certificates. However, statistics published by the
FHA are normally used as an indicator of the expected average life of GNMA
Certificates. These statistics indicate that the average life of single-family
dwelling mortgages with 25-30 year maturities, the type of mortgages backing the
vast majority of GNMA Certificates, is approximately 12 years. However,
mortgages with high interest rates have experienced accelerated prepayment rates
which would indicate a shorter average life.
2. Yield Characteristics of GNMA Certificates. The coupon rate of
interest of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the GNMA Certificates, but
only by the amount of the fees paid to the GNMA and the issuer. For the most
common type of mortgage pool, containing single-family dwelling mortgages, the
GNMA receives an annual fee of 0.06 of 1% of the outstanding principal for
providing its guarantee, and the issuer is paid an annual fee of 0.44 of 1% for
assembling the mortgage pool and for passing through monthly payments of
interest and principal to Certificate holders.
The coupon rate by itself, however, does not indicate the yield which
will be earned on the GNMA Certificates for the following reasons:
(a) GNMA Certificates may be issued at a premium or
discount, rather than at par.
(b) After issuance, GNMA Certificates may trade in the
secondary market at a premium or discount.
(c) Interest is earned monthly, rather than semi-annually as
for traditional bonds. Monthly compounding has the effect of raising
the effective yield earned on GNMA Certificates.
(d) The actual yield of each GNMA Certificate is influenced
by the prepayment experience of the mortgage pool underlying the
Certificate. If mortgagors pay off their mortgages early, the principal
returned to Certificate holders may be reinvested at more or less
favorable rates.
3. Market for GNMA Certificates. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Prices of GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the
- 5 -
<PAGE>
Certificate's coupon rate and the prepayment experience of the pool of mortgages
backing each Certificate.
FHLMC Certificates. The term "FHLMC Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Federal Home Loan Mortgage Corporation. The
Federal Home Loan Mortgage Corporation is the leading seller of conventional
mortgage securities in the United States. FHLMC Certificates are not guaranteed
by the United States or by any Federal Home Loan Bank and do not constitute
debts or obligations of the United States or any Federal Home Loan Bank.
Mortgage loans underlying FHLMC Certificates will consist of fixed rate
mortgages with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first liens on one-family or
two-to-four family residential properties. Mortgage interest rates may be mixed
in a pool. The seller/ servicer of each mortgage retains a minimum three-eighths
of 1% servicing fee, and any remaining excess of mortgage rate over coupon rate
is kept by the Federal Home Loan Mortgage Corporation. The coupon rate of a
FHLMC Certificate does not by itself indicate the yield which will be earned on
the Certificate for the reasons discussed above in connection with GNMA
Certificates.
FNMA Certificates. The term "FNMA Certificates" refers to
mortgage-backed securities representing part ownership of a pool of mortgage
loans, which are guaranteed by the Federal National Mortgage Association.
The FNMA, despite having U.S. Government agency status, is also a
private, for-profit corporation organized to provide assistance in the housing
mortgage market. The only function of the FNMA is to provide a secondary market
for residential mortgages. Mortgage loans underlying FNMA Certificates reflect a
considerable diversity and are purchased from a variety of mortgage originators.
They are typically collateralized by conventional mortgages (not FHA-insured or
VA-guaranteed). FNMA Certificates are highly liquid and usually trade in the
secondary market at higher yields than GNMA Certificates. The coupon rate of a
FNMA Certificate does not by itself indicate the yield which will be earned on
the Certificate for the reasons discussed above in connection with GNMA
Certificates.
- 6 -
<PAGE>
Collateralized Mortgage Obligations. Collateralized Mortgage
Obligations ("CMOs") are fully-collateralized bonds which are the general
obligations of the issuer thereof. The key feature of the CMO structure is the
prioritization of the cash flows from a pool of mortgages among the several
classes of CMO holders, thereby creating a series of obligations with varying
rates and maturities appealing to a wide range of investors. CMOs generally are
secured by an assignment to a trustee under the indenture pursuant to which the
bonds are issued for collateral consisting of a pool of mortgages. Payments with
respect to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages are
not passed through to the holders of the CMOs as such (that is, the character of
payments of principal and interest is not passed through and therefore payments
to holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment of
interest on and repayment of principal of the CMOs. CMOs are issued in two or
more classes or series with varying maturities and stated rates of interest
determined by the issuer. Because interest and principal payments on the
underlying mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on which
are used to pay interest on each class and to retire successive maturities in
sequence. CMOs are designed to be retired as the underlying mortgages are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of CMO first to mature generally will be retired prior to
maturity. Therefore, although in most cases the issuer of CMOs will not supply
additional collateral in the event of such prepayments, there will be sufficient
collateral to secure CMOs that remain outstanding.
In 1983, the Federal Home Loan Mortgage Corporation began issuing CMOs.
Since FHLMC CMOs are the general obligations of the FHLMC, it will be obligated
to use its general funds to make payments thereon if payments generated by the
underlying mortgages are insufficient to pay principal and interest in its CMOs.
In addition, CMOs are issued by private entities, such as financial
institutions, mortgage bankers and subsidiaries of homebuilding companies. The
structural features of privately issued CMOs will vary considerably from issue
to issue, and the Adviser will consider such features, together with the
character of the underlying mortgage pool and the liquidity and credit rating of
the issue. The Adviser will consider privately issued CMOs as possible
investments only when the underlying mortgage collateral is insured, guaranteed
or otherwise backed by the U.S. Government or one or more of its agencies or
instrumentalities.
- 7 -
<PAGE>
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities; the
first three classes pay interest at their stated rates beginning with the issue
date and the final class is typically an accrual class (or Z bond). The cash
flows from the underlying mortgage collateral are applied first to pay interest
and then to retire securities. The classes of securities are retired
sequentially. All principal payments are directed first to the shortest-maturity
class (or A bond). When those securities are completely retired, all principal
payments are then directed to the next-shortest-maturity security (or B bond).
This process continues until all of the classes have been paid off. Because the
cash flow is distributed sequentially instead of pro rata as with pass-through
securities, the cash flows and average lives of CMOs are more predictable, and
there is a period of time during which the investors into the longer- maturity
classes receive no principal paydowns.
When-Issued Securities and Securities Purchased On a To-Be- Announced
Basis. The Funds will only make commitments to purchase securities on a
when-issued or to-be-announced ("TBA") basis with the intention of actually
acquiring the securities. In addition, the Funds may purchase securities on a
when-issued or TBA basis only if delivery and payment for the securities takes
place within 120 days after the date of the transaction. In connection with
these investments, each Fund will direct the Custodian to place cash or U.S.
Government obligations in a segregated account in an amount sufficient to make
payment for the securities to be purchased. When a segregated account is
maintained because a Fund purchases securities on a when-issued or TBA basis,
the assets deposited in the segregated account will be valued daily at market
for the purpose of determining the adequacy of the securities in the account. If
the market value of such securities declines, additional cash or securities will
be placed in the account on a daily basis so that the market value of the
account will equal the amount of a Fund's commitments to purchase securities on
a when-issued or TBA basis. To the extent funds are in a segregated account,
they will not be available for new investment or to meet redemptions. Securities
purchased on a when-issued or TBA basis and the securities held in a Fund's
portfolio are subject to changes in market value based upon changes in the level
of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates decline and depreciation when interest rates
rise). Therefore, if in order to achieve higher returns, a Fund remains
substantially fully invested at the same time that it has purchased securities
on a when-issued or TBA basis, there will be a possibility that the market value
of the Fund's assets will have greater fluctuation. The purchase of securities
on a when-issued or TBA basis may involve a risk of loss if the broker-dealer
selling the securities fails to deliver after the value of the securities has
risen.
- 8 -
<PAGE>
When the time comes for a Fund to make payment for securities purchased
on a when-issued or TBA basis, the Fund will do so by using then available cash
flow, by sale of the securities held in the segregated account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the securities purchased on a when-issued or TBA basis themselves (which
may have a market value greater or less than the Fund's payment obligation).
Although a Fund will only make commitments to purchase securities on a
when-issued or TBA basis with the intention of actually acquiring the
securities, the Funds may sell these securities before the settlement date if it
is deemed advisable by the Adviser as a matter of investment strategy.
STRIPS. STRIPS are U.S. Treasury bills, notes, and bonds that have
been issued without interest coupons or stripped of their unmatured interest
coupons, interest coupons that have been stripped from such U.S. Treasury
securities, and receipts or certificates representing interests in such
stripped U.S. Treasury securities and coupons. A STRIPS security pays no
interest in cash to its holder during its life although interest is accrued for
federal income tax purposes. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value. Investing in STRIPS may help to preserve capital during periods of
declining interest rates. For example, if interest rates decline, GNMA
Certificates owned by a Fund which were purchased at greater than par are more
likely to be prepaid, which would cause a loss of principal. In anticipation of
this, a Fund might purchase STRIPS, the value of which would be expected to
increase when interest rates decline.
STRIPS do not entitle the holder to any periodic payments of interest
prior to maturity. Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt obligations of
comparable maturities which make periodic distributions of interest. On the
other hand, because there are no periodic interest payments to be reinvested
prior to maturity, STRIPS eliminate the reinvestment risk and lock in a rate of
return to maturity. Current federal tax law requires that a holder of a STRIPS
security accrue a portion of the discount at which the security was purchased as
income each year even though the Fund received no interest payment in cash on
the security during the year.
Repurchase Agreements. Repurchase agreements are transactions by
which a Fund purchases a security and simultaneously commits to resell that
security to the seller at an agreed upon time and price, thereby determining
the yield
- 9 -
<PAGE>
during the term of the agreement. In the event of a bankruptcy or other default
of the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 10% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, including
accrued interest, will equal or exceed the value of the repurchase agreement,
and in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed the value of the repurchase agreement. The
collateral securing the seller's obligation must be of a credit quality at least
equal to a Fund's investment criteria for portfolio securities and will be held
by the Custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, a repurchase
agreement is deemed to be a loan from a Fund to the seller subject to the
repurchase agreement and is therefore subject to that Fund's investment
restriction applicable to loans. It is not clear whether a court would consider
the securities purchased by a Fund subject to a repurchase agreement as being
owned by that Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the security under
a repurchase agreement, a Fund may encounter delay and incur costs before being
able to sell the security. Delays may involve loss of interest or decline in
price of the security. If a court characterized the transaction as a loan and a
Fund has not perfected a security interest in the security, that Fund may be
required to return the security to the seller's estate and be
- 10 -
<PAGE>
treated as an unsecured creditor of the seller. As an unsecured creditor, a Fund
would be at the risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt obligation purchased for a Fund,
the Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case, the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security, in which case a Fund may
incur a loss if the proceeds to that Fund of the sale of the security to a third
party are less than the repurchase price. However, if the market value of the
securities subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund involved will direct the seller of the
security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
enforce the seller's contractual obligation to deliver additional securities.
Loans of Portfolio Securities. Each Fund (except the U.S. Government
Securities Fund) may lend its portfolio securities subject to the restrictions
stated in its Prospectus. Under applicable regulatory requirements (which are
subject to change), the loan collateral must, on each business day, at least
equal the value of the loaned securities. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by a Fund if the
demand meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. The Funds receive amounts equal to the dividends or
interest on loaned securities and also receive one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, or (c) interest on
short-term debt securities purchased with such collateral; either type of
interest may be shared with the borrower. The Funds may also pay fees to placing
brokers as well as custodian and administrative fees in connection with loans.
Fees may only be paid to a placing broker provided that the Trustees determine
that the fee paid to the placing broker is reasonable and based solely upon
services rendered, that the Trustees separately consider the propriety of any
fee shared by the placing broker with the borrower, and that the fees are not
used to compensate the Adviser or any affiliated person of the Trust or an
affiliated person of the Adviser or other affiliated person. The terms of the
Funds' loans must meet applicable tests under the Internal Revenue Code and
permit the Funds to reacquire loaned securities on five days' notice or in time
to vote on any important matter.
Bank Debt Instruments. Bank debt instruments in which the
Funds may invest consist of certificates of deposit, bankers'
acceptances and time deposits issued by national banks and state
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banks, trust companies and mutual savings banks, or of banks or institutions the
accounts of which are insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation. Certificates of deposit are
negotiable certificates evidencing the indebtedness of a commercial bank to
repay funds deposited with it for a definite period of time (usually from
fourteen days to one year) at a stated or variable interest rate. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft which has been drawn on it by a customer, which instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. Time deposits are non-negotiable deposits maintained
in a banking institution for a specified period of time at a stated interest
rate. Investments in time deposits maturing in more than seven days will be
subject to each Fund's restrictions on illiquid investments (see "Investment
Limitations").
Commercial Paper. Commercial paper consists of short-term (usually
from one to two hundred seventy days) unsecured promissory notes issued by
corporations in order to finance their current operations. Each Fund will only
invest in commercial paper rated A-1 by Standard & Poor's Ratings Group or
Prime-1 by Moody's Investors Service, Inc. or unrated paper of issuers who have
outstanding unsecured debt rated AA or better by Standard & Poor's or Aa or
better by Moody's. Certain notes may have floating or variable rates. Variable
and floating rate notes with a demand notice period exceeding seven days will be
subject to each Fund's restrictions on illiquid investments (see "Investment
Limitations") unless, in the judgment of the Adviser, subject to the direction
of the Board of Trustees, such note is liquid. The Funds do not presently intend
to invest in commercial paper.
The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: valuation of the management of the issuer;
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; evaluation of the
issuer's products in relation to competition and customer acceptance; liquidity;
amount and quality of long-term debt; trend of earnings over a period of 10
years; financial strength of the parent company and the relationships which
exist with the issuer; and recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations. These factors are all considered in
determining whether the commercial paper is rated Prime-1. Commercial paper
rated A (highest quality) by Standard & Poor's Ratings Group has the following
characteristics: liquidity ratios are adequate to meet cash
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requirements; long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed; the issuer has access to at least two
additional channels of borrowing; basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances; typically, the issuer's
industry is well established and the issuer has a strong position within the
industry; and the reliability and quality of management are unquestioned. The
relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1.
Foreign Securities. Subject to each Fund's investment policies and
quality and maturity standards, the Utility Fund and the Equity Fund may invest
in the securities (payable in U.S. dollars) of foreign issuers. The Utility Fund
may also invest in non-U.S. dollar-denominated securities principally traded in
financial markets outside the United States. Because the Funds may invest in
foreign securities, an investment in the Funds involves risks that are different
in some respects from an investment in a fund which invests only in securities
of U.S. domestic issuers. Foreign investments may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations. There
may be less publicly available information about a foreign company than about a
U.S. company, and foreign companies may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those
applicable to U.S. companies. There may be less governmental supervision of
securities markets, brokers and issuers of securities. Securities of some
foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Settlement practices may include delays and
may differ from those customary in United States markets. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, restrictions on foreign investment
and repatriation of capital, imposition of withholding taxes on dividend or
interest payments, currency blockage (which would prevent cash from being
brought back to the United States), and difficulty in enforcing legal rights
outside the United States.
Transactions in Options and Futures. The Trustees have approved the
Utility Fund's use of the options and futures strategies described below.
1. Writing Covered Call Options on Equity Securities. The
Utility Fund may write covered call options on equity securities
to earn premium income, to assure a definite price for a security
it has considered selling, or to close out options previously
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purchased. A call option gives the holder (buyer) the right to purchase a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). A call option is "covered" if the Fund owns the
underlying security subject to the call option at all times during the option
period. A covered call writer is required to deposit in escrow the underlying
security in accordance with the rules of the exchanges on which the option is
traded and the appropriate clearing agency.
The writing of covered call options is a conservative investment
technique which the Adviser believes involves relatively little risk. However,
there is no assurance that a closing transaction can be effected at a favorable
price. During the option period, the covered call writer has, in return for the
premium received, given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase, but
has retained the risk of loss should the price of the underlying security
decline.
The Fund may write covered call options if, immediately thereafter, not
more than 30% of its net assets would be committed to such transactions. As long
as the rules promulgated under the California Corporate Securities Law prohibit
the Fund from engaging in unlisted covered call transactions, the Fund will not
do so. In addition, as long as the Securities and Exchange Commission continues
to take the position that unlisted options are illiquid securities, the Fund
will not commit more than 10% of its net assets to unlisted covered call
transactions and other illiquid securities. The ability of the Fund to write
covered call options may be limited by state regulations which require the Fund
to commit no more than a specified percentage of its assets to such transactions
and the tax requirement that less than 30% of the Fund's gross income be derived
from the sale or other disposition of securities held for less than 3 months.
2. Purchasing Options on U.S. Government Securities. The
Utility Fund may purchase put options on U.S. Government
securities to protect against a risk that an anticipated rise in
interest rates would result in a decline in the value of the
Fund's portfolio securities. The Fund may purchase call options
on U.S. Government securities as a means of obtaining temporary
exposure to market appreciation when the Fund is not fully
invested.
A put option is a short-term contract (having a duration of nine months
or less) which gives the purchaser of the option, in return for a premium, the
right to sell the underlying security at a specified price during the term of
the option. A call option is a short-term contract which gives the purchaser of
the call option, in return for a premium, the right to buy the
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<PAGE>
underlying security at a specified price during the term of the
option. The purchase of put and call options on U.S. Government
securities is analogous to the purchase of puts and calls on
stocks. The Fund will purchase options on U.S. Treasury Bonds,
Notes and Bills only.
There are special considerations applicable to options on U.S. Treasury
Bonds and Notes. Because trading interest in options written on U.S. Treasury
Bonds and Notes tends to center on the most recently auctioned issues, the
Exchanges will not continue indefinitely to introduce options with new
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each issue of U.S. Treasury Bonds and Notes will thus be phased out as new
options are listed on more recent issues, and options representing a full range
of expirations will not ordinarily be available for every issue on which options
are traded.
To terminate its rights with respect to put and call options which it
has purchased, the Fund may sell an option of the same series in a "closing sale
transaction." A profit or loss will be realized depending on whether the sale
price of the option plus transaction costs is more or less than the cost to the
Fund of establishing the position. If an option purchased by the Fund is not
exercised or sold, it will become worthless after its expiration date and the
Fund will experience a loss in the form of the premium and transaction costs
paid in establishing the option position.
The option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular option.
The option activities of the Fund may affect its turnover rate and the amount of
brokerage commissions paid by the Fund. The Fund pays a brokerage commission
each time it buys or sells a security in connection with the exercise of an
option. Such commissions may be higher than those which would apply to direct
purchases or sales of portfolio securities.
3. Purchasing Options on Interest Rate Futures Contracts. The Utility
Fund may purchase put and call options on interest rate futures contracts. The
purchase of put options on interest rate futures contracts hedges the Fund's
portfolio against the risk of rising interest rates. The purchase of call
options on futures contracts is a means of obtaining temporary exposure to
market appreciation at limited risk and is a hedge against a market advance when
the Fund is not fully invested. Assuming that any decline in the securities
being hedged is accompanied by a rise in interest rates, the purchase of options
on the futures
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<PAGE>
contracts may generate gains which can partially offset any decline in the value
of the Fund's portfolio securities which have been hedged. However, if after the
Fund purchases an option on a futures contract, the value of the securities
being hedged moves in the opposite direction from that contemplated, the Fund
will tend to experience losses in the form of premiums on such options which
would partially offset gains the Fund would have.
An interest rate futures contract is a contract to buy or sell
specified debt securities at a future time for a fixed price. The Fund may
purchase put and call options on interest rate futures which are traded on a
national exchange or board of trade and sell such options to terminate an
existing position. The Fund may not enter into interest rate futures contracts.
Options on interest rate futures are similar to options on stocks except that an
option on an interest rate future gives the purchaser the right, in return for
the premium paid, to assume a position in an interest rate futures contract (a
long position if the option is a call and a short position if the option is a
put), rather than to purchase or sell stock, at a specified exercise price at
any time during the period of the option.
As with options on stocks, the holder of an option on an interest rate
futures contract may terminate his position by selling an option of the same
series. There is no guarantee that such closing transactions can be effected. In
addition to the risks which apply to all options transactions, there are several
special risks relating to options on interest rate futures contracts. The
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Compared to the use of interest rate
futures, the purchase of options on interest rate futures involves less
potential risk to the Fund because the maximum amount at risk is the premium
paid for the options, plus transaction costs.
4. Options Transactions Generally. Option transactions in which the
Utility Fund may engage involve the specific risks described above as well as
the following risks: the writer of an option may be assigned an exercise at any
time during the option period; disruptions in the markets for underlying
instruments could result in losses for options investors; imperfect or no
correlation between the option and the securities being hedged; the insolvency
of a broker could present risks for the broker's customers; and market imposed
restrictions may prohibit the exercise of certain options. In addition, the
option activities of the Fund may affect its portfolio turnover rate and the
amount of brokerage commissions paid by the Fund. The success of the Fund in
using the option strategies described above depends, among other things, on the
Adviser's ability to predict the direction and volatility of price movements in
the options, futures contracts and securities markets and the Adviser's
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ability to select the proper time, type and duration of the
options.
Warrants and Rights. Warrants are options to purchase equity securities
at a specified price and are valid for a specific time period. Rights are
similar to warrants, but normally have a short duration and are distributed by
the issuer to its shareholders. The Utility Fund and the Equity Fund may
purchase warrants and rights, provided that neither Fund invests more than 5% of
its respective net assets at the time of purchase in warrants and rights other
than those that have been acquired in units or attached to other securities. Of
such 5%, no more than 2% of a Fund's assets at the time of purchase may be
invested in warrants which are not listed on either the New York Stock Exchange
or the American Stock Exchange.
Majority. As used in the Prospectuses and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the applicable Fund) present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust (or the applicable Fund) are present
or represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or the applicable Fund).
INVESTMENT LIMITATIONS
- ----------------------
The Trust has adopted certain fundamental investment limitations
designed to reduce the risk of an investment in the Funds. These limitations may
not be changed with respect to any Fund without the affirmative vote of a
majority of the outstanding shares of that Fund.
THE LIMITATIONS APPLICABLE TO THE U.S. GOVERNMENT SECURITIES
FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except as a
temporary measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets. While the Fund's
borrowings are in excess of 5% of its total assets, the Fund will not purchase
any additional portfolio securities. This investment limitation does not
preclude the Fund from entering into reverse repurchase transactions, provided
that the Fund has asset coverage of 300% for all borrowings of the Fund and
reverse repurchase commitments of the Fund pursuant to such transactions. The
Fund will not pledge, mortgage or hypothecate its assets (collateral
arrangements with respect to writing options and initial margin on futures
contracts are not deemed to be a pledge, mortgage or hypothecation of assets for
purposes of this investment
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<PAGE>
limitation) except in connection with borrowings described in
this investment limitation.
2. Margin Purchases. The Fund will not purchase any
securities on "margin" (except such short-term credits as are
necessary for the clearance of transactions or to the extent
necessary to engage in transactions described in the Prospectus
and Statement of Additional Information which involve margin
purchases).
3. Short Sales. The Fund will not make short sales of
securities.
4. Options. The Fund will not purchase or sell puts,
calls, options, straddles, commodities or commodities futures
except as described in the Prospectus and Statement of Additional
Information.
5. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases, rights or royalty contracts.
6. Underwriting. The Fund will not act as underwriters of
securities issued by other persons. This limitation is not
applicable to the extent that, in connection with the disposition
of its portfolio securities, the Fund may be deemed an
underwriter under certain federal securities laws.
7. Illiquid Investments. The Fund will not purchase securities which
cannot be readily resold to the public because of legal or contractual
restrictions on resale or for which no readily available market exists or engage
in a repurchase agreement maturing in more than seven days if, as a result
thereof, more than 10% of the value of the total assets of the Fund would be
invested in such securities.
8. Concentration. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
9. Real Estate. The Fund will not purchase, hold or deal in real
estate or real estate mortgage loans, except it may purchase (a) U.S. Government
obligations, (b) securities of companies which deal in real estate, or (c)
securities which are secured by interests in real estate or by interests in
mortgage loans including securities secured by mortgage-backed securities.
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<PAGE>
10. Loans. The Fund will not make loans except (a) by
purchase of marketable bonds, debentures, commercial paper or
corporate notes, and similar marketable evidences of indebtedness
which are part of an issue for the public or (b) by entry into
repurchase agreements.
11. Investing for Control. The Fund will not invest in
companies for the purpose of exercising control.
12. Other Investment Companies. The Fund will not acquire securities
issued by any other investment company or investment trust, except (a) in
connection with a merger, consolidation, acquisition of assets or
reorganization, or (b) by purchase in the open market where no underwriter or
dealer's commission or profit, other than customary broker's commission, is
involved and only if immediately thereafter not more than 10% of the total
assets of the Fund would be invested in the securities of such issuers and not
more than 3% of the securities of any other investment company would be owned by
the Fund.
13. Securities of One Issuer. The Fund will not invest more than 5%
of its total assets in the securities of any issuer; provided, however, that
there is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
14. Securities of One Class. The Fund will not purchase more than 10%
of any class of securities of any issuer or more than 10% of the outstanding
voting securities of any issuer (all outstanding bonds and other evidence of
indebtedness will be deemed to be a single class of securities of the issuer,
and all kinds of stock of an issuer preferred over the common stock as to
dividends or liquidation will be deemed to constitute a single class regardless
of relative priorities, series designations, conversion rights or other
differences).
15. Securities Owned by Affiliates. The Fund will not purchase or
retain the securities of any issuers if those officers and Trustees of the Trust
or officers, directors, or partners of its Advisers, owning individually more
than one-half of 1% of the securities of such issuer, own in the aggregate more
than 5% of the securities of such issuer.
16. When-Issued or To-Be-Announced Securities. The Trust
will not make any commitment to purchase securities on a when-
issued or to-be-announced basis for the U.S. Government
Securities Fund if more than 25% of the Fund's assets would be so
committed.
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<PAGE>
17. Senior Securities. The Fund will not issue or sell any
senior security as defined by the Investment Company Act of 1940
except insofar as any borrowing that the Fund may engage in may
be deemed to be an issuance of a senior security.
THE LIMITATIONS APPLICABLE TO THE TREASURY TOTAL RETURN FUND
ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets. This limitation is not applicable to
when- issued purchases.
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in
any manner transfer, as security for indebtedness, any security owned or held by
the Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Underwriting. The Fund will not act as underwriter of
securities issued by other persons. This limitation is not
applicable to the extent that, in connection with the disposition
of portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal
securities laws.
4. Illiquid Investments. The Fund will not invest more
than 10% of its net assets in securities for which there are
legal or contractual restrictions on resale and other illiquid
securities.
5. Real Estate. The Fund will not purchase, hold or deal
in real estate.
6. Commodities. The Fund will not purchase, hold or deal
in commodities or commodities futures contracts, or invest in
oil, gas or other mineral explorative or development programs.
This limitation is not applicable to the extent that the U.S.
Treasury Obligations in which the Fund may otherwise invest would
be considered to be such commodities, contracts or investments.
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<PAGE>
7. Loans. The Fund will not make loans to other persons,
except (a) by loaning portfolio securities, or (b) by engaging in
repurchase agreements. For purposes of this limitation, the term
"loans" shall not include the purchase of a portion of an issue
of U.S. Treasury Obligations.
8. Margin Purchases. The Fund will not purchase
securities or evidences of interest thereon on "margin." This
limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemption of
securities.
9. Short Sales and Options. The Fund will not sell any
securities short or sell put and call options. This limitation
is not applicable to the extent that sales by the Fund of
securities in which the Fund may otherwise invest would be
considered to be sales of options.
10. Other Investment Companies. The Fund will not invest
more than 5% of its total assets in the securities of any
investment company and will not invest more than 10% of its total
assets in securities of other investment companies.
11. Concentration. The Fund will not invest more than 25%
of its total assets in a particular industry; this limitation is
not applicable to investments in obligations issued by the U.S.
Government, its territories and possessions, the District of
Columbia and their respective agencies and instrumentalities or
repurchase agreements with respect thereto.
12. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases or exploration or development programs.
13. Senior Securities. The Fund will not issue or sell any
senior security as defined by the Investment Company Act of 1940
except insofar as any borrowing that the Fund may engage in may
be deemed to be an issuance of a senior security.
THE LIMITATIONS APPLICABLE TO THE UTILITY FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) from a
bank, provided that immediately after such borrowing there is asset coverage of
300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that, when made, such temporary borrowings are
in an amount not exceeding 5% of the Fund's total assets. The Fund also will not
make any borrowing which would cause its outstanding borrowings to exceed
one-third of the value of its total assets.
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<PAGE>
2. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
manner transfer, as security for indebtedness, any security owned or held by the
Fund except as may be necessary in connection with borrowings described in
limitation (1) above. The Fund will not mortgage, pledge or hypothecate more
than one-third of its assets in connection with borrowings.
3. Margin Purchases. The Fund will not purchase any
securities on "margin" (except such short-term credits as are
necessary for the clearance of transactions or to the extent
necessary to engage in transactions described in the Prospectus
and Statement of Additional Information which involve margin
purchases).
4. Short Sales. The Fund will not make short sales of
securities.
5. Options. The Fund will not purchase or sell puts,
calls, options, straddles, commodities or commodities futures
except as described in the Prospectus and Statement of Additional
Information.
6. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases, rights or royalty contracts.
7. Underwriting. The Fund will not act as underwriter of
securities issued by other persons. This limitation is not
applicable to the extent that, in connection with the disposition
of portfolio securities, a Fund may be deemed an underwriter
under certain federal securities laws.
8. Illiquid Investments. The Fund will not purchase securities which
cannot be readily resold to the public because of legal or contractual
restrictions on resale or for which no readily available market exists or engage
in a repurchase agreement maturing in more than seven days if, as a result
thereof, more than 10% of the value of the net assets of the Fund would be
invested in such securities.
9. Real Estate. The Fund will not purchase, hold or deal in real
estate or real estate mortgage loans, except that the Fund may purchase (a)
securities of companies (other than limited partnerships) which deal in real
estate or (b) securities which are secured by interests in real estate or by
interests in mortgage loans including securities secured by mortgage-backed
securities.
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<PAGE>
10. Loans. The Fund will not make loans to other persons, except
(a) by loaning portfolio securities, or (b) by engaging in repurchase
agreements. For purposes of this limitation, the term "loans" shall not include
the purchase of marketable bonds, debentures, commercial paper or corporate
notes, and similar marketable evidences of indebtedness which are part of an
issue for the public.
11. Investing for Control. The Fund will not invest in
companies for the purpose of exercising control.
12. Other Investment Companies. The Fund will not invest
more than 10% of its total assets in securities of other
investment companies. The Fund will not invest more than 5% of
its total assets in the securities of any single investment
company.
13. Amount Invested in One Issuer. The Fund will not invest more than
5% of its total assets in the securities of any issuer; provided, however, that
there is no limitation with respect to investments and obligations issued or
guaranteed by the United States Government or its agencies or instrumentalities
or repurchase agreements with respect thereto.
14. Voting Securities of Any Issuer. The Fund will not purchase 5% or
more of the outstanding voting securities of any electric or gas utility company
(as defined in the Public Utility Holding Company Act of 1935), or purchase more
than 10% of the outstanding voting securities of any other issuer.
15. Securities Owned by Affiliates. The Fund will not purchase or
retain the securities of any issuers if those officers and Trustees of the Trust
or officers, directors, or partners of its Adviser, owning individually more
than one-half of 1% of the securities of such issuer, own in the aggregate more
than 5% of the securities of such issuer.
16. Industry Concentration. Under normal market conditions, the Fund
will invest more than 25% of its total assets in the public utilities industry.
The Fund will not invest more than 25% of its total assets in any particular
industry except the public utilities industry. For purposes of this limitation,
the public utilities industry includes companies that produce or supply electric
power, natural gas, water, sanitary services, telecommunications and other
communications services (but not radio or television broadcasters) for public
use or consumption.
17. Senior Securities. The Fund will not issue or sell any
senior security as defined by the Investment Company Act of 1940
except insofar as any borrowing that the Fund may engage in may
be deemed to be an issuance of a senior security.
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THE LIMITATIONS APPLICABLE TO THE EQUITY FUND ARE:
1. Borrowing Money. The Fund will not borrow money, except (a) as a
temporary measure for extraordinary or emergency purposes and then only in
amounts not in excess of 10% of the value of its total assets. While the Fund's
borrowings are in excess of 5% of its total assets, the Fund will not purchase
any additional portfolio securities. The Fund will not pledge, mortgage or
hypothecate its assets except in connection with borrowings described in this
investment limitation.
2. Margin Purchases. The Fund will not purchase any
securities on "margin" (except such short-term credit as are
necessary for the clearance of transactions).
3. Short Sales. The Fund will not make short sales of
securities.
4. Options. The Fund will not purchase or sell puts,
calls, options, straddles, commodities or commodities futures.
5. Mineral Leases. The Fund will not purchase oil, gas or
other mineral leases or exploration or development programs.
6. Underwriting. The Fund will not act as underwriter of securities
issued by other persons, either directly or through a majority owned subsidiary.
This limitation is not applicable to the extent that, in connection with the
disposition of its portfolio securities (including restricted securities), the
Fund may be deemed an underwriter under certain federal securities laws.
7. Illiquid Investments. The Fund will not purchase securities which
cannot be readily resold to the public because of legal or contractual
restrictions on resale or for which no readily available market exists or engage
in a repurchase agreement maturing in more than seven days if, as a result
thereof, more than 15% of the value of the Fund's net assets would be invested
in such securities.
8. Concentration. The Fund will not invest more than 25% of its total
assets in the securities of issuers in any particular industry; provided,
however, that there is no limitation with respect to investments in obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements with respect thereto.
9. Real Estate. The Fund will not purchase, hold or deal
in real estate, including real estate limited partnerships.
- 24 -
<PAGE>
10. Loans. The Fund will not make loans to other persons, except
(a) by loaning portfolio securities if the borrower agrees to maintain
collateral marked to market daily in an amount at least equal to the market
value of the loaned securities, or (b) by engaging in repurchase agreements.
For purposes of this limitation, the term "loans" shall not include the
purchase of marketable bonds, debentures, commercial paper or corporate notes,
and similar marketable evidences of indebtedness which are part of an issue for
the public.
11. Investing for Control. The Fund will not invest in
companies for the purpose of exercising control.
12. Other Investment Companies. The Fund will not invest
more than 10% of its total assets in securities of other
investment companies. The Fund will not invest more than 5% of
its total assets in the securities of any single investment
company.
13. Securities of One Issuer. The Fund will not purchase the
securities of any issuer if such purchase at the time thereof would cause more
than 5% of the value of its total assets to be invested in the securities of
such issuer (the foregoing limitation does not apply to investments in
government securities as defined in the Investment Company Act of 1940).
14. Securities of One Class. The Fund will not purchase the
securities of any issuer if such purchase at the time thereof would cause 10%
of any class of securities of such issuer to be held by the Fund, or acquire
more than 10% of the outstanding voting securities of such issuer. (All
outstanding bonds and other evidences of indebtedness shall be deemed to be a
single class of securities of the issuer).
15. Securities Owned by Affiliates. The Fund will not purchase or
retain the securities of any issuers if those officers and Trustees of the Trust
or officers, directors, or partners of its Adviser, owning individually more
than one-half of 1% of the securities of such issuer, own in the aggregate more
than 5% of the securities of such issuer.
16. Senior Securities. The Fund will not issue or sell any senior
security. This limitation is not applicable to short-term credit obtained by the
Fund for the clearance of purchases and sales or redemptions of securities, or
to arrangements with respect to transactions involving forward foreign currency
exchange contracts, options, futures contracts, short sales and other similar
permitted investments and techniques.
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<PAGE>
With respect to the percentages adopted by the Trust as maximum
limitations on the Funds' investment policies and restrictions, an excess above
the fixed percentage (except for the percentage limitations relative to the
borrowing of money) will not be a violation of the policy or restriction unless
the excess results immediately and directly from the acquisition of any security
or the action taken.
The Trust has never pledged, mortgaged or hypothecated the assets of
any Fund, and the Trust presently intends to continue this policy. The Trust has
never acquired, nor does it presently intend to acquire, securities issued by
any other investment company or investment trust. As long as the rules
promulgated under the California Corporate Securities Law prohibit a Fund from
acquiring or retaining securities of any open-end investment company, the Funds
will not acquire or retain such securities, unless the acquisition is part of a
merger or acquisition of assets or other reorganization. The Treasury Total
Return Fund does not intend to invest in obligations issued by territories and
possessions of the United States, the District of Columbia and their respective
agencies and instrumentalities or repurchase agreements with respect thereto.
The statements of intention in this paragraph reflect nonfundamental policies
which may be changed by the Board of Trustees without shareholder approval.
TRUSTEES AND OFFICERS
- ---------------------
The following is a list of the Trustees and executive officers of the
Trust and their aggregate compensation from the Trust and the Midwest complex
(consisting of the Trust, Midwest Group Tax Free Trust and Midwest Trust) for
the fiscal year ended March 31, 1996. Each Trustee who is an "interested person"
of the Trust, as defined by the Investment Company Act of 1940, is indicated by
an asterisk. Each Trustee is also a Trustee of Midwest Group Tax Free Trust and
Midwest Trust.
COMPENSATION
COMPENSATION FROM
NAME AGE POSITION HELD FROM TRUST MIDWEST COMPLEX
- ---- --- ------------- ---------- ---------------
*Robert H. Leshner 56 President/Trustee $ 0 $ 0
+Dale P. Brown 48 Trustee 2,483 3,850
Gary W. Heldman 49 Trustee 583 5,050
+H. Jerome Lerner 57 Trustee 2,483 7,150
+Richard A. Lipsey 56 Trustee 2,483 3,850
Donald J. Rahilly 50 Trustee 2,083 3,250
Fred A. Rappoport 49 Trustee 2,383 3,550
Oscar P. Robertson 57 Trustee 583 5,050
Robert B. Sumerel 54 Trustee 2,383 3,550
John F. Splain 39 Secretary 0 0
Mark J. Seger 34 Treasurer 0 0
- 26 -
<PAGE>
* Mr. Leshner, as an affiliated person of Midwest Group Financial
Services, Inc., the Trust's principal underwriter and investment
adviser, is an "interested person" of the Trust within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
ROBERT H. LESHNER, 312 Walnut Street, Cincinnati, Ohio is
Chairman of the Board of Midwest Group Financial Services, Inc.
(the investment adviser and principal underwriter of the Trust),
MGF Service Corp. (a registered transfer agent) and Leshner
Financial, Inc. (a financial services company and parent of
Midwest Group Financial Services, Inc. and MGF Service Corp.).
He is President and a Trustee of Midwest Group Tax Free Trust and
Midwest Trust, registered investment companies.
DALE P. BROWN, 36 East Seventh Street, Cincinnati, Ohio is
President and Chief Executive Officer of Sive/Young & Rubicam, an
advertising agency. She is also a director of The Ohio National
Life Insurance Company.
GARY W. HELDMAN, 183 Congress Run Road, Cincinnati, Ohio is
the former President of The Fechheimer Brothers Company, a
manufacturer of uniforms.
H. JEROME LERNER, 7149 Knoll Road, Cincinnati, Ohio is a principal of
HJL Enterprises and is Chairman of Crane Electronics, Inc., a manufacturer of
electronic connectors.
RICHARD A. LIPSEY, 11478 Rue Concord, Baton Rouge, Louisiana
is President and Chief Executive Officer of Lipsey's, Inc., a
national sporting goods distributor. He is also a Regional
Director of Premier Bank, N.A.
DONALD J. RAHILLY, 9933 Alliance Road, Cincinnati, Ohio is
Chairman of S. Rosenthal & Co., Inc., a printing company.
FRED A. RAPPOPORT, 830 Birchwood Drive, Los Angeles, California is
President and Chairman of The Fred Rappoport Company, a broadcasting and
entertainment production company.
OSCAR P. ROBERTSON, 4293 Muhlhauser Road, Fairfield, Ohio is President
of Orchem Corp., a chemical specialties distributor, and Orpack Stone
Corporation, a corrugated box manufacturer.
- 27 -
<PAGE>
ROBERT B. SUMEREL, 8675 Bridgewater Lane, Cincinnati, Ohio
is Chief Executive Officer of Bob Sumerel Tire Inc., a tire sales
and service company.
JOHN F. SPLAIN, 312 Walnut Street, Cincinnati, Ohio is Secretary and
General Counsel of Leshner Financial, Inc., Midwest Group Financial Services,
Inc. and MGF Service Corp. He is also Secretary of Midwest Group Tax Free Trust,
Midwest Trust, Brundage, Story and Rose Investment Trust, Leeb Personal
FinanceTM Investment Trust, Williamsburg Investment Trust, Markman MultiFund
Trust, The Tuscarora Investment Trust, PRAGMA Investment Trust, Maplewood
Investment Trust and The Thermo Opportunity Fund, Inc. and Assistant Secretary
of Schwartz Investment Trust and Fremont Mutual Funds, Inc., all of which are
registered investment companies.
MARK J. SEGER, C.P.A., 312 Walnut Street, Cincinnati, Ohio is Vice
President of Leshner Financial, Inc. and MGF Service Corp. He is also Treasurer
of Midwest Group Tax Free Trust, Midwest Trust, Brundage, Story and Rose
Investment Trust, Leeb Personal FinanceTM Investment Trust, Williamsburg
Investment Trust, Markman MultiFund Trust, PRAGMA Investment Trust, Maplewood
Investment Trust and The Thermo Opportunity Fund, Inc., Assistant Treasurer of
Schwartz Investment Trust and The Tuscarora Investment Trust and Assistant
Secretary of Fremont Mutual Funds, Inc.
THE INVESTMENT ADVISER AND UNDERWRITER
- --------------------------------------
Midwest Group Financial Services, Inc. (the "Adviser") is the Funds'
investment manager. The Adviser is a subsidiary of Leshner Financial, Inc.,
of which Robert H. Leshner is the controlling shareholder. Mr. Leshner may
be deemed to be a controlling person and an affiliate of the Adviser by reason
of his indirect ownership of its shares and his position as the principal
executive officer of the Adviser. Mr. Leshner, by reason of such affiliation,
may directly or indirectly receive benefits from the advisory fees paid to the
Adviser.
Under the terms of the investment advisory agreements between the Trust
and the Adviser, the Adviser manages the Funds' investments. Each Fund pays the
Adviser a fee computed and accrued daily and paid monthly at an annual rate of
.75% of its average daily net assets up to $200,000,000, .7% of such assets from
$200,000,000 to $500,000,000 and .5% of such assets in excess of $500,000,000.
The total fees paid by a Fund during the first and second halves of each fiscal
year of the Trust may not exceed the semiannual total of the daily fee accruals
requested by the Adviser during the applicable six month period.
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<PAGE>
For the fiscal years ended March 31, 1996, 1995 and 1994, the U.S.
Government Securities Fund paid advisory fees of $190,075 (net of voluntary fee
waivers of $9,000), $261,660, and $269,160, respectively. For the fiscal years
ended March 31, 1996, 1995 and 1994, the Treasury Total Return Fund paid
advisory fees of $125,571 (net of voluntary fee waivers of $35,800), $176,208
(net of voluntary fee waivers of $32,713) and $295,134, respectively. For the
fiscal years ended March 31, 1996, 1995 and 1994, the Utility Fund paid advisory
fees of $328,982, $325,780 and $338,922, respectively. For the fiscal years
ended March 31, 1996, 1995 and 1994, the Equity Fund paid advisory fees of
$5,214 (net of voluntary fee waivers of $53,777), $12,853 (net of voluntary fee
waivers of $46,905) and $48,685, respectively; however, in order to reduce the
operating expenses of the Equity Fund, the Adviser voluntarily reimbursed the
Fund for $5,308 of Class A expenses during the fiscal year ended March 31, 1996,
$14,964 of Class C expenses during the fiscal year ended March 31, 1995 and
$14,221 and $18,412 of Class A and Class C expenses, respectively, during the
fiscal year ended March 31, 1994.
The Funds are responsible for the payment of all expenses incurred in
connection with the organization, registration of shares and operations of the
Funds, including such extraordinary or non-recurring expenses as may arise, such
as litigation to which the Trust may be a party. The Funds may have an
obligation to indemnify the Trust's officers and Trustees with respect to such
litigation, except in instances of willful misfeasance, bad faith, gross
negligence or reckless disregard by such officers and Trustees in the
performance of their duties. The Adviser bears promotional expenses in
connection with the distribution of the Funds' shares to the extent that such
expenses are not assumed by the Funds under their plans of distribution (see
below). The compensation and expenses of any officer, Trustee or employee of the
Trust who is an officer, director, employee or stockholder of the Adviser are
paid by the Adviser, except that the compensation and expenses of the Chief
Financial Officer of the Trust are paid by the Trust regardless of the Chief
Financial Officer's relationship with the Adviser.
By their terms, the Funds' investment advisory agreements will remain
in force until March 31, 1997 and from year to year thereafter, subject to
annual approval by (a) the Board of Trustees or (b) a vote of the majority of a
Fund's outstanding voting securities; provided that in either event continuance
is also approved by a majority of the Trustees who are not interested persons of
the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval. The Funds' investment advisory agreements may be
terminated at any time, on sixty days' written notice, without the payment of
any penalty, by the Board of Trustees, by a vote of the majority of a Fund's
outstanding voting securities, or by the Adviser. The
- 29 -
<PAGE>
investment advisory agreements automatically terminate in the event of their
assignment, as defined by the Investment Company Act of 1940 and the rules
thereunder.
The Adviser will reimburse the Funds to the extent that the expenses of
a Fund for any fiscal year exceed the applicable expense limitations imposed by
state securities administrators, as such limitations may be lowered or raised
from time to time. The most restrictive limitation is presently 2.5% of the
first $30 million of average daily net assets, 2% of the next $70 million of
average daily net assets and 1.5% of average daily net assets in excess of $100
million. If any such reimbursement is required, the payment of the advisory fee
at the end of any month will be reduced or postponed or, if necessary, a refund
will be made to the Funds at the end of such month. Certain expenses such as
brokerage commissions, if any, taxes, interest, extraordinary items and other
expenses subject to approval of state securities administrators are excluded
from such limitations. If the expenses of a Fund approach the applicable
limitation in any state, the Trust will consider the various actions that are
available to it, including suspension of sales to residents of that state.
The Adviser may use the name "Midwest," "Midwest Strategic" or any
derivation thereof in connection with any registered investment company or other
business enterprise with which it is or may become associated.
The Adviser is also the principal underwriter of the Funds and, as
such, the exclusive agent for distribution of shares of the Funds. The Adviser
is obligated to sell the shares on a best efforts basis only against purchase
orders for the shares. Shares of each Fund are offered to the public on a
continuous basis.
The Adviser currently allows concessions to dealers who sell shares of
the Funds. The Adviser receives that portion of the sales load which is not
reallowed to the dealers who sell shares of the Funds. The Adviser retains the
entire sales load on all direct initial investments in the Funds and on all
investments in accounts with no designated dealer of record. For the fiscal year
ended March 31, 1996, the aggregate underwriting commissions on sales of the
Trust's shares were $136,764 of which the Adviser paid $121,645 to unaffiliated
broker-dealers in the selling network, earned (along with affiliates) $8,240 as
a broker-dealer in the selling network and retained $6,879 in underwriting
commissions. For the fiscal year ended March 31, 1995, the aggregate
underwriting commissions on sales of the Trust's shares were $179,235 of which
the Adviser paid $160,038 to unaffiliated broker-dealers in the selling network,
earned (along with affiliates) $4,649 as a broker-dealer in the selling network
and retained $14,548 in underwriting commissions. For the fiscal year ended
March 31, 1994, the aggregate underwriting commissions
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<PAGE>
on sales of the Trust's shares were $527,108 of which the Adviser paid $477,147
to unaffiliated broker-dealers in the selling network, earned (along with
affiliates) $19,065 as a broker-dealer in the selling network and retained
$30,896 in underwriting commissions.
The Funds may compensate dealers, including the Adviser and its
affiliates, based on the average balance of all accounts in the Funds for which
the dealer is designated as the party responsible for the account. See
"Distribution Plans" below.
DISTRIBUTION PLANS
- ------------------
Class A Shares -- As stated in the Prospectus, the Funds have adopted a
plan of distribution (the "Class A Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 which permits each Fund to pay for expenses
incurred in the distribution and promotion of the Funds' shares, including but
not limited to, the printing of prospectuses, statements of additional
information and reports used for sales purposes, advertisements, expenses of
preparation and printing of sales literature, promotion, marketing and sales
expenses, and other distribution-related expenses, including any distribution
fees paid to securities dealers or other firms who have executed a distribution
or service agreement with the Adviser. The Class A Plan expressly limits payment
of the distribution expenses listed above in any fiscal year to a maximum of
.25% of the average daily net assets of the U.S. Government Securities Fund and
the Treasury Total Return Fund and .25% of the average daily net assets of the
Class A shares of the Utility Fund and the Equity Fund. Unreimbursed expenses
will not be carried over from year to year.
Class C Shares (Utility Fund and Equity Fund) -- The Utility Fund and
the Equity Fund have also adopted a plan of distribution (the "Class C Plan")
with respect to the Class C shares of such Funds. The Class C Plan provides for
two categories of payments. First, the Class C Plan provides for the payment to
the Adviser of an account maintenance fee, in an amount equal to an annual rate
of .25% of the average daily net assets of the Class C shares, which may be paid
to other dealers based on the average value of Class C shares owned by clients
of such dealers. In addition, a Fund may pay up to an additional .75% per annum
of the daily net assets of the Class C shares for expenses incurred in the
distribution and promotion of the shares, including prospectus costs for
prospective shareholders, costs of responding to prospective shareholder
inquiries, payments to brokers and dealers for selling and assisting in the
distribution of Class C shares, costs of advertising and promotion and any other
expenses related to the distribution of the Class C shares. Unreimbursed
expenditures will not be carried over from year to
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<PAGE>
year. The Funds may make payments to dealers and other persons in an amount up
to .75% per annum of the average value of Class C shares owned by their clients,
in addition to the .25% account maintenance fee described above.
General Information -- For the fiscal year ended March 31, 1996, the
aggregate distribution-related expenditures under the Plans were $2,528 for the
U.S. Government Securities Fund; $2,317 for the Treasury Total Return Fund;
$45,893 and $22,116 for Class A and Class C shares, respectively, of the Utility
Fund; and $556 and $5,545 for Class A and Class C shares, respectively, of the
Equity Fund. Amounts were spent as follows:
U.S. Treasury
Government Total Utility Utility Equity Equity
Securities Return Fund Fund Fund Fund
Fund Fund Class A Class C Class A Class C
--------- ------ ------- ------- ------- -------
Printing and
mailing of
prospectuses
and reports
to prospective
shareholders... $ 2,528 $ 2,317 $ 4,596 $ 413 $ 556 $ 237
Payments to
broker-dealers
and others for
the sale or
retention of
assets........ - - 41,297 21,703 - 5,308
------- ------- ------- ------ ----- -------
$ 2,528 $ 2,317 $45,893 $22,116 $ 556 $ 5,545
======= ======= ======= ======== ===== =======
Agreements implementing the Plans (the "Implementation Agreements"),
including agreements with dealers wherein such dealers agree for a fee to act as
agents for the sale of the Funds' shares, are in writing and have been approved
by the Board of Trustees. All payments made pursuant to the Plans are made in
accordance with written agreements.
The continuance of the Plans and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the Plans or any
Implementation Agreement (the "Independent Trustees") at a meeting called for
the purpose of voting on such continuance. A Plan may be terminated at any time
by a vote of a majority of the Independent Trustees or by a vote of the holders
of a majority of the outstanding shares of a Fund or the applicable class of a
Fund. In the event a Plan is terminated in accordance with its terms, the
affected Fund (or class) will not be required to make
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<PAGE>
any payments for expenses incurred by the Adviser after the termination date.
Each Implementation Agreement terminates automatically in the event of its
assignment and may be terminated at any time by a vote of a majority of the
Independent Trustees or by a vote of the holders of a majority of the
outstanding shares of a Fund (or the applicable class) on not more than 60 days'
written notice to any other party to the Implementation Agreement. The Plans may
not be amended to increase materially the amount to be spent for distribution
without shareholder approval. All material amendments to the Plans must be
approved by a vote of the Trust's Board of Trustees and by a vote of the
Independent Trustees.
In approving the Plans, the Trustees determined, in the exercise of
their business judgment and in light of their fiduciary duties as Trustees, that
there is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds which will benefit the Funds and their shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plans will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plans. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Funds pursuant
to the Plans and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each class of shares bears to the sales of all the shares
of such Fund. In addition, the selection and nomination of those Trustees who
are not interested persons of the Trust are committed to the discretion of the
Independent Trustees during such period.
By reason of his indirect ownership of shares of the Adviser, Robert H.
Leshner may be deemed to have a financial interest in the operation of the Plans
and the Implementation Agreements.
SECURITIES TRANSACTIONS
- -----------------------
Decisions to buy and sell securities for the Funds and the placing of
the Funds' securities transactions and negotiation of commission rates where
applicable are made by the Adviser and are subject to review by the Board of
Trustees of the Trust. In the
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<PAGE>
purchase and sale of portfolio securities, the Adviser seeks best execution for
the Funds, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), the execution capability, financial
responsibility and responsiveness of the broker or dealer and the brokerage and
research services provided by the broker or dealer. The Adviser generally seeks
favorable prices and commission rates that are reasonable in relation to the
benefits received. For the fiscal years ended March 31, 1996, 1995 and 1994, the
Utility Fund paid brokerage commissions of $43,560, $80,464 and $47,578,
respectively. For the fiscal years ended March 31, 1996, 1995 and 1994, the
Equity Fund paid brokerage commissions of $23,064, $71,412 and $46,069,
respectively.
Generally, the Funds attempt to deal directly with the dealers who make
a market in the securities involved unless better prices and execution are
available elsewhere. Such dealers usually act as principals for their own
account. On occasion, portfolio securities for the Funds may be purchased
directly from the issuer. Because the portfolio securities of the U.S.
Government Securities Fund and the Treasury Total Return Fund are generally
traded on a net basis and transactions in such securities do not normally
involve brokerage commissions, the cost of portfolio securities transactions for
these Funds will consist primarily of dealer or underwriter spreads. No
brokerage commissions have been paid by the U.S. Government Securities Fund or
the Treasury Total Return Fund during the last three fiscal years.
The Adviser is specifically authorized to select brokers who also
provide brokerage and research services to the Funds and/or other accounts over
which the Adviser exercises investment discretion and to pay such brokers a
commission in excess of the commission another broker would charge if the
Adviser determines in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided. The determination
may be viewed in terms of a particular transaction or the Adviser's overall
responsibilities with respect to the Funds and to accounts over which it
exercises investment discretion. During the fiscal year ended March 31, 1996,
the amount of brokerage transactions and related commissions for the Utility
Fund directed to brokers due to research services provided were $11,138,486 and
$43,560, respectively. During the fiscal year ended March 31, 1996, the amount
of brokerage transactions and related commissions for the Equity Fund directed
to brokers due to research services provided were $7,310,262 and $23,064,
respectively.
Research services include securities and economic analyses, reports on
issuers' financial conditions and future business prospects, newsletters and
opinions relating to interest trends,
- 34 -
<PAGE>
general advice on the relative merits of possible investment securities for the
Funds and statistical services and information with respect to the availability
of securities or purchasers or sellers of securities. Although this information
is useful to the Funds and the Adviser, it is not possible to place a dollar
value on it. Research services furnished by brokers through whom the Funds
effect securities transactions may be used by the Adviser in servicing all of
its accounts and not all such services may be used by the Adviser in connection
with the Funds.
The Funds have no obligation to deal with any broker or dealer in the
execution of securities transactions. However, the Adviser and other affiliates
of the Trust or the Adviser may effect securities transactions which are
executed on a national securities exchange or transactions in the
over-the-counter market conducted on an agency basis. For the fiscal year ended
March 31, 1994, the Utility Fund and the Equity Fund paid to the Adviser
brokerage commissions of $10,160 and $21,420, respectively. No Fund will effect
any brokerage transactions in its portfolio securities with the Adviser if such
transactions would be unfair or unreasonable to its shareholders. Over-the-
counter transactions will be placed either directly with principal market makers
or with broker-dealers. Although the Funds do not anticipate any ongoing
arrangements with other brokerage firms, brokerage business may be transacted
from time to time with other firms. Neither the Adviser nor affiliates of the
Trust or the Adviser will receive reciprocal brokerage business as a result of
the brokerage business transacted by the Funds with other brokers.
Amivest Corporation may be deemed to be an affiliate of the Trust by
virtue of the fact that it owned of record 5% or more of the outstanding shares
of one or more series of the Trust. During the fiscal year ended March 31, 1995,
the Equity Fund paid Amivest Corporation brokerage commissions of $1,800. During
the fiscal year ended March 31, 1994, the Utility Fund and the Equity Fund paid
Amivest Corporation brokerage commissions of $6,000 and $5,538, respectively.
During the fiscal year ended March 31, 1996, the Funds entered into
repurchase transactions with the following of the Trust's regular broker-dealers
as defined under the Investment Company Act of 1940: Daiwa Securities America
Inc., Dean Witter Reynolds Inc., Fuji Securities Inc., Nesbitt-Burns Securities,
Inc. and Prudential-Bache Securities Inc.
CODE OF ETHICS. The Trust and the Adviser have each adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act of 1940. The Code significantly
restricts the personal investing activities of all employees of the Adviser and,
as described below, imposes additional, more onerous, restrictions on
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<PAGE>
investment personnel of the Adviser. The Code requires that all employees of the
Adviser preclear any personal securities investment (with limited exceptions,
such as U.S. Government obligations). The preclearance requirement and
associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. In addition, no employee may
purchase or sell any security which at the time is being purchased or sold (as
the case may be), or to the knowledge of the employee is being considered for
purchase or sale, by any Fund. The substantive restrictions applicable to
investment personnel of the Adviser include a ban on acquiring any securities in
an initial public offering and a prohibition from profiting on short-term
trading in securities. Furthermore, the Code provides for trading "blackout
periods" which prohibit trading by investment personnel of the Adviser within
periods of trading by the Funds in the same (or equivalent) security.
PORTFOLIO TURNOVER
- ------------------
A Fund's portfolio turnover rate is calculated by dividing the lesser
of purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. A 100% turnover rate would occur if all of a Fund's portfolio securities
were replaced once within a one year period.
Generally, each Fund intends to invest for long-term purposes. However,
the rate of portfolio turnover will depend upon market and other conditions, and
it will not be a limiting factor when the Adviser believes that portfolio
changes are appropriate.
If warranted by market conditions, the U.S. Government Securities Fund
may engage in short-term trading if the Adviser believes the transactions, net
of costs, will result in improving the income or the appreciation potential of
the Fund's portfolio. Because of the possibility of short-term trading, there
may be a very substantial turnover of the Fund's portfolio. For the fiscal years
ended March 31, 1996 and 1995, the U.S. Government Securities Fund experienced
portfolio turnover of 160% and 205%, respectively.
The Treasury Total Return Fund is managed in light of the Adviser's
interpretation of market conditions and trends. When, in the opinion of the
Adviser, market indicators point to lower interest rates, the Adviser will
convert a substantial portion of the Fund's portfolio to long-term U.S. Treasury
obligations. When, in the opinion of the Adviser, market indicators point to
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<PAGE>
higher interest rates, the Adviser will convert a substantial portion of the
Fund's portfolio to short-term U.S. Treasury obligations. If the Adviser
projects more than one shift in interest rates within a fiscal year, there may
be a very substantial turnover of the Fund's portfolio. For the fiscal years
ended March 31, 1996 and 1995, the Treasury Total Return Fund experienced
portfolio turnover of 0% and 63%, respectively.
Because the Utility Fund and the Equity Fund are actively managed by
the Adviser in light of the Adviser's investment outlook for common stocks,
there may be a very substantial turnover of each Fund's portfolio. For the
fiscal years ended March 31, 1996 and 1995, the Utility Fund experienced
portfolio turnover of 11% and 17%, respectively. For the fiscal years ended
March 31, 1996 and 1995, the Equity Fund experienced portfolio turnover of 38%
and 159%, respectively.
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE
- ----------------------------------------------------
The share price (net asset value) and the public offering price (net
asset value plus applicable sales load) of the shares of each Fund are
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), on each day the Trust is
open for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The Trust may also be open for business on other days in which there is
sufficient trading in a Fund's portfolio securities that its net asset value
might be materially affected. For a description of the methods used to determine
the share price and the public offering price, see "Calculation of Share Price
and Public Offering Price" in the Prospectus.
OTHER PURCHASE INFORMATION
- --------------------------
The Prospectus describes generally how to purchase shares of the Funds.
Additional information with respect to certain types of purchases of shares of
the U.S. Government Securities Fund and the Treasury Total Return Fund and Class
A shares of the Utility Fund and the Equity Fund is set forth below.
Right of Accumulation. A "purchaser" (as defined in the Prospectus) of
shares of a Fund has the right to combine the cost or current net asset value
(whichever is higher) of his existing shares of the load funds distributed by
the Adviser with the amount of his current purchases in order to take advantage
of the reduced sales loads set forth in the tables in the Prospectus. The
purchaser or his dealer must notify MGF Service Corp. that an investment
qualifies for a reduced sales load. The reduced load
- 37 -
<PAGE>
will be granted upon confirmation of the purchaser's holdings by MGF Service
Corp.
Letter of Intent. The reduced sales loads set forth in the tables in
the Prospectus may also be available to any "purchaser" (as defined in the
Prospectus) of shares of a Fund who submits a Letter of Intent to MGF Service
Corp. The Letter must state an intention to invest within a thirteen month
period in any load fund distributed by the Adviser a specified amount which, if
made at one time, would qualify for a reduced sales load. A Letter of Intent may
be submitted with a purchase at the beginning of the thirteen month period or
within ninety days of the first purchase under the Letter of Intent. Upon
acceptance of this Letter, the purchaser becomes eligible for the reduced sales
load applicable to the level of investment covered by such Letter of Intent as
if the entire amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the purchaser to
purchase, or the Trust to sell, the full amount indicated. During the term of a
Letter of Intent, shares representing 5% of the intended purchase will be held
in escrow. These shares will be released upon the completion of the intended
investment. If the Letter of Intent is not completed during the thirteen month
period, the applicable sales load will be adjusted by the redemption of
sufficient shares held in escrow, depending upon the amount actually purchased
during the period. The minimum initial investment under a Letter of Intent is
$10,000.
A ninety-day backdating period can be used to include earlier purchases
at the purchaser's cost (without a retroactive downward adjustment of the sales
charge). The thirteen month period would then begin on the date of the first
purchase during the ninety-day period. No retroactive adjustment will be made if
purchases exceed the amount indicated in the Letter of Intent. The purchaser or
his dealer must notify MGF Service Corp. that an investment is being made
pursuant to an executed Letter of Intent.
Other Information. The Trust does not impose a front-end sales load or
imposes a reduced sales load in connection with purchases of shares of a Fund
made under the reinvestment privilege or the purchases described in the "Reduced
Sales Load," "Purchases at Net Asset Value" or "Exchange Privilege" sections in
the Prospectus because such purchases require minimal sales effort by the
Adviser. Purchases described in the "Purchases at Net Asset Value" section may
be made for investment only, and the shares may not be resold except through
redemption by or on behalf of the Trust.
- 38 -
<PAGE>
TAXES
- -----
The Prospectus describes generally the tax treatment of distributions
by the Funds. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
Each Fund has qualified and intends to qualify annually for the special
tax treatment afforded a "regulated investment company" under Subchapter M of
the Internal Revenue Code so that it does not pay federal taxes on income and
capital gains distributed to shareholders. To so qualify a Fund must, among
other things, (i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; (ii) derive less than 30% of its gross income
in each taxable year from the sale or other disposition of the following assets
held for less than three months: (a) stock or securities, (b) options, futures
or forward contracts not directly related to its principal business of investing
in stock or securities; and (iii) diversify its holdings so that at the end of
each quarter of its taxable year the following two conditions are met: (a) at
least 50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, securities of other regulated investment companies and
other securities (for this purpose such other securities will qualify only if
the Fund's investment is limited in respect to any issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
A Fund's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction. As of March 31, 1996, the U.S. Government Securities
Fund, the Treasury Total Return Fund, the Utility Fund and the Equity Fund had
capital loss carryforwards for federal income tax purposes of $4,077,191,
$2,071,201, $30,527 and $265,871, respectively, none of which expire until at
least March 31, 2002.
A federal excise tax at the rate of 4% will be imposed on the excess,
if any, of a Fund's "required distribution" over
- 39 -
<PAGE>
actual distributions in any calendar year. Generally, the "required
distribution" is 98% of a Fund's ordinary income for the calendar year plus 98%
of its net capital gains recognized during the one year period ending on October
31 of the calendar year plus undistributed amounts from prior years. The Funds
intend to make distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a
portion (31%) of dividend income on any account unless the shareholder provides
a taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION IN KIND
- ------------------
Under unusual circumstances, when the Board of Trustees deems it in the
best interests of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current value. If any such redemption in kind is to be made, each Fund intends
to make an election pursuant to Rule 18f-1 under the Investment Company Act of
1940. This election will require the Funds to redeem shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of each Fund during any 90
day period for any one shareholder. Should payment be made in securities, the
redeeming shareholder will generally incur brokerage costs in converting such
securities to cash. Portfolio securities which are issued in an in-kind
redemption will be readily marketable.
HISTORICAL PERFORMANCE INFORMATION
- ----------------------------------
From time to time, each Fund may advertise average annual total return.
Average annual total return quotations will be computed by finding the average
annual compounded rates of return over 1, 5 and 10 year periods that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 and 10 year periods
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof)
- 40 -
<PAGE>
The calculation of average annual total return assumes the reinvestment of all
dividends and distributions and the deduction of the current maximum sales load
from the initial $1,000 payment. If a Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated. The average annual total
returns of the Funds for the periods ended March 31, 1996 are as follows:
U.S. Government Securities Fund
1 Year +6.22%
5 Years +5.45%
10 Years +6.35%
Treasury Total Return Fund
1 Year -1.17%
5 Years +4.11%
Since inception (January 26, 1988) +4.26%
Utility Fund (Class A)
1 Year +16.79%
5 Years +9.84%
Since inception (August 15, 1989) +9.64%
Utility Fund (Class C)
1 Year +20.78%
Since inception (August 2, 1993) 6.39%
Equity Fund (Class A)
1 Year +22.79%
Since inception (August 2, 1993) +10.11%
Equity Fund (Class C)
1 Year +26.90%
Since inception (June 7, 1993) +10.43%
Each Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. This computation does not include
the effect of the applicable sales load which, if included, would reduce total
return. The total returns of the Funds as calculated in this manner for each of
the last ten fiscal years (or since inception) are as follows:
- 41 -
<PAGE>
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Government Total Utility Utility Equity Equity
Securities Return Fund Fund Fund Fund
Fund Fund Class A Class C Class A Class C
Period Ended
March 31, 1987 + 8.62%
March 31, 1988 + 2.95% - 3.14%(1)
March 31, 1989 + 4.97% + 3.16%
March 31, 1990 + 8.60% + 4.71% + 5.37%(2)
March 31, 1991 +11.37% + 9.95% + 9.23%
March 31, 1992 + 9.46% + 8.98% +11.84%
March 31, 1993 +11.71% +16.21% +20.64%
March 31, 1994 + 0.30% - 0.54% - 2.11% - 5.21%(3) - 2.63%(3) - 2.91%(4)
March 31, 1995 + 0.06% - 1.75% + 3.68% + 3.00% + 8.07% + 7.32%
March 31, 1996 + 8.39% + 2.95% +21.65% +20.78% +27.90% +26.90%
(1) From date of initial public offering on January 26, 1988
(2) From date of initial public offering on August 15, 1989
(3) From date of initial public offering on August 2, 1993
(4) From date of initial public offering on June 7, 1993
</TABLE>
A nonstandardized quotation may also indicate average annual compounded rates of
return without including the effect of the applicable sales load or over periods
other than those specified for average annual total return. The average annual
compounded rates of return for the Funds (excluding sales loads) for the periods
ended March 31, 1996 are as follows:
U.S. Government Securities Fund
1 Year +8.39%
3 Years +2.84%
5 Years +5.87%
10 Years +6.56%
Since inception (June 4, 1984) +8.58%
Treasury Total Return Fund
1 Year +2.95%
3 Years +0.20%
5 Years +4.97%
Since inception (January 26, 1988) +4.78%
Utility Fund (Class A)
1 Year +21.65%
3 Years + 7.28%
5 Years +10.74%
Since inception (August 15, 1989) +10.32%
Utility Fund (Class C)
1 Year +20.78%
Since inception (August 2, 1993) + 6.39%
- 42 -
<PAGE>
Equity Fund (Class A)
1 Year +27.90%
Since inception (August 2, 1993) +11.81%
Equity Fund (Class C)
1 Year +26.90%
Since inception (June 7, 1993) +10.43%
A nonstandardized quotation of total return will always be accompanied by the
Fund's average annual total return as described above.
From time to time, each of the Funds may advertise its yield. A yield
quotation is based on a 30-day (or one month) period and is computed by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period, according to the
following formula:
Yield = 2[(a-b/cd +1)6 -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by
accruing 1/360 of the stated dividend rate of the security each day that a Fund
owns the security. Generally, interest earned (for the purpose of "a" above) on
debt obligations is computed by reference to the yield to maturity of each
obligation held based on the market value of the obligation (including actual
accrued interest) at the close of business on the last business day prior to the
start of the 30-day (or one month) period for which yield is being calculated,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest). With respect to the treatment of discount and
premium on mortgage or other receivables-backed obligations which are expected
to be subject to monthly paydowns of principal and interest, gain or loss
attributable to actual monthly paydowns is accounted for as an increase or
decrease to interest income during the period and discount or premium on the
remaining security is not amortized. The yield of the U.S. Government Securities
Fund for March 1996 was 5.51%. The yield of the Treasury Total Return Fund for
March 1996 was 4.37%. The yields of Class A and Class C shares of the Utility
Fund for March 1996 were 3.62% and 2.97%, respectively. The yields of Class A
and Class C shares of the Equity Fund for March 1996 were 0.71% and 0.01%,
respectively.
- 43 -
<PAGE>
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance. Average annual
total return and yield are computed separately for Class A and Class C shares of
the Utility Fund and the Equity Fund. The yield of Class A shares is expected to
be higher than the yield of Class C shares due to the higher distribution fees
imposed on Class C shares.
To help investors better evaluate how an investment in a Fund might
satisfy their investment objective, advertisements regarding each Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Funds may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis and Lipper Fixed Income Fund
Performance Analysis measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
loads. The U.S. Government Securities Fund may provide comparative performance
information appearing in the U.S. Mortgage Funds category, the Treasury Total
Return Fund may provide comparative performance information appearing in the
U.S. Treasury Funds category, the Utility Fund may provide comparative
performance information appearing in the Utility Funds category and the Equity
Fund may provide comparative performance information appearing in the Capital
Appreciation Funds category. In addition, the Funds may also use comparative
performance information of relevant indices, including the following:
Lehman Brothers Mortgage-Backed Securities Index, which measures the
performance of 15 and 30-year fixed rate securities backed by mortgage pools of
the GNMA, the FHLMC and the FNMA. Graduated payment mortgages and balloons are
included in the index; buydowns, manufactured homes and graduated equity
mortgages are not.
Merrill Lynch Treasuries (All Maturities) Index, which
measures the current performance of U.S. Treasury obligations on
a specific date. U.S. Treasury obligations are backed by the
"full faith and credit" of the United States Government.
S&P 500 Index is an unmanaged index of 500 stocks, the purpose of which
is to portray the pattern of common stock price movement.
- 44 -
<PAGE>
Dow Jones Industrial Average is a measurement of general market price
movement for 30 widely held stocks listed on the New York Stock Exchange.
S&P Utility Index is an unmanaged index consisting of three utility
groups totaling 40 companies -- 21 electric power companies, 11 natural gas
distributors and pipelines and 8 telephone companies.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Funds' portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
- --------------------------
As of July 5, 1996, Amivest Corporation, P.O. Box 370, Cooper Station,
New York, New York owned of record 20.88% of the outstanding shares of the U.S.
Government Securities Fund; Merrill Lynch/FDS, 4800 Deer Lake Drive East,
Jacksonville, Florida owned of record 6.39% and 5.77% of the outstanding Class A
and Class C shares, respectively, of the Utility Fund; Orflex Employees 401K
Plan, 470 W. Northland Boulevard, Cincinnati, Ohio owned of record 9.01% of the
outstanding Class A shares of the Equity Fund; Martin S. Goldfarb, M.D., 919 N.
Crescent, Beverly Hills, California owned of record 6.45% of the outstanding
Class A shares of the Equity Fund; Clifford G. Neil, D.D.S. PC Profit Sharing
Plan, 307 S. University, Carbondale, Illinois owned of record 12.62% of the
outstanding Class C shares of the Equity Fund; Ella B. Cobb c/o J.B. Cobb
Executor, 166 W. Oakridge Park, Metairie, Louisiana owned of record 7.71% of the
outstanding Class C shares of the Equity Fund; and KMK Profit Sharing 401K FBO
H. Weiss c/o Provident Bank, Trustee, One East Fourth Street, Cincinnati, Ohio
owned of record 7.41% of the outstanding Class C shares of the Equity Fund.
As of July 5, 1996, the Trustees and officers of the Trust as a group
owned of record or beneficially 1.58% of the outstanding shares of the Trust,
including 3.16% of the outstanding Class A shares of the Utility Fund, 3.30% of
the outstanding Class A shares of the Equity Fund, 4.12% of the outstanding
Class C shares of the Equity Fund and less than 1% of the outstanding shares of
each other Fund (or Class thereof).
- 45 -
<PAGE>
CUSTODIAN
- ---------
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio, has
been retained to act as Custodian for each Fund's investments. The Fifth Third
Bank acts as each Fund's depository, safekeeps its portfolio securities,
collects all income and other payments with respect thereto, disburses funds as
instructed and maintains records in connection with its duties. As compensation,
The Fifth Third Bank receives from each Fund a base fee at the annual rate of
.005% of average net assets (subject to a minimum annual fee of $1,500 per Fund
and a maximum fee of $5,000 per Fund) plus transaction charges for each security
transaction of the Funds.
AUDITORS
- --------
The firm of Arthur Andersen LLP has been selected as independent
auditors for the Trust for the fiscal year ending March 31, 1997. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Trust as to certain accounting
matters.
MGF SERVICE CORP.
- ----------------
The Trust's transfer agent, MGF Service Corp. ("MGF"), maintains the
records of each shareholder's account, answers shareholders' inquiries
concerning their accounts, processes purchases and redemptions of the Funds'
shares, acts as dividend and distribution disbursing agent and performs other
shareholder service functions. MGF is an affiliate of the Adviser by reason of
common ownership. MGF receives for its services as transfer agent a fee payable
monthly at an annual rate of $21 per account from each of the U.S. Government
Securities Fund and the Treasury Total Return Fund and $17 per account from each
of the Utility Fund and the Equity Fund, provided, however, that the minimum fee
is $1,000 per month for each class of shares of a Fund. In addition, the Funds
pay out-of-pocket expenses, including but not limited to, postage, envelopes,
checks, drafts, forms, reports, record storage and communication lines.
MGF also provides accounting and pricing services to the Funds. For
calculating daily net asset value per share and maintaining such books and
records as are necessary to enable MGF to perform its duties, the U.S.
Government Securities Fund pays MGF a fee in accordance with the following
schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $3,250
50,000,000 - 100,000,000 3,750
100,000,000 - 250,000,000 4,250
Over 250,000,000 4,750
- 46 -
<PAGE>
The Treasury Total Return Fund pays MGF a fee in accordance with the following
schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $2,750
50,000,000 - 100,000,000 3,250
100,000,000 - 250,000,000 3,750
Over 250,000,000 4,250
The Utility Fund and the Equity Fund each pay MGF a fee in accordance with the
following schedule:
Asset Size of Fund Monthly Fee
$ 0 - $ 50,000,000 $3,500
50,000,000 - 100,000,000 4,000
100,000,000 - 150,000,000 4,500
150,000,000 - 200,000,000 5,000
200,000,000 - 250,000,000 5,500
Over 250,000,000 6,500
In addition, each Fund pays all costs of external pricing services.
MGF is retained by the Adviser to assist the Adviser in providing
administrative services to the Funds. In this capacity, MGF supplies
non-investment related statistical and research data, internal regulatory
compliance services and executive and administrative services. MGF supervises
the preparation of tax returns, reports to shareholders of the Funds, reports to
and filings with the Securities and Exchange Commission and state securities
commissions, and materials for meetings of the Board of Trustees. For the
performance of these administrative services, MGF receives a fee from the
Adviser equal to one-fourth of the fee payable from the Funds to the Adviser
pursuant to the Funds' investment advisory agreements with the Adviser. The
Adviser is solely responsible for the payment of these administrative fees to
MGF, and MGF has agreed to seek payment of such fees solely from the Adviser.
ANNUAL REPORT
The Funds' financial statements as of March 31, 1996 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
- 47 -
<PAGE>
U.S. GOVERNMENT SECURITIES FUND
MANAGEMENT DISCUSSION AND ANALYSIS
==============================================================================
The U.S. Government Securities Fund seeks high current income, consistent with
the protection of capital, by investing primarily in mortgage-backed
securities which are issued or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities. For the fiscal year ended
March 31, 1996, the Fund's total return (excluding the impact of the maximum
2% front-end sales load) was 8.39%, as compared to 10.49% for the Lehman
Brothers Mortgage-Backed Securities Index.
The economy slowed in 1995 following above average growth in 1994. Gross
domestic product moderated from a 3.5% annual growth rate in 1994 to 1.3% in
1995. The slowdown, which began in the first quarter of 1995, prompted the
Federal Reserve Board to lower the widely followed Federal Funds rate three
times in an effort to stimulate the economy. Interest rates declined
dramatically during the calendar year with intermediate and long maturities
declining approximately 2%. However, economic growth accelerated in the first
quarter of 1996, causing interest rates to reverse their year-long trend. This
resulted in increased bond price volatility as investors grappled with the
uncertainty regarding the future direction of the economy.
Throughout the fiscal year ended March 31, 1996, the Fund maintained a
combination of mortgage-backed securities, government agency securities and
Treasury issues. A core position of passthrough mortgage-backed securities and
callable agency securities generated current income while a smaller position
in Treasuries and non-callable agency securities produced capital
appreciation. Management also executed a sector rotation strategy whereby the
Fund was able to capitalize on inefficiencies in the market by buying
undervalued sectors while selling those considered overvalued. The Fund was
well-positioned for the declining interest rate environment which prevailed
throughout 1995. However, the unexpected rise in rates in early 1996 hurt the
Fund's comparative performance for the fiscal year.
As a result of heightened market volatility and the potential for an increase
in inflation, the Fund will maintain a cautious approach in the months ahead.
Until it becomes apparent that the economy is positioned for trend growth and
that inflation remains subdued, the Fund will pursue a defensive strategy
which emphasizes current income over total return. We expect market volatility
to continue through the summer months with the possibility of further
increases in interest rates. Longer term, we are more constructive on the
market as we believe trend growth will resume in the latter part of 1996.
<PAGE>
TREASURY TOTAL RETURN FUND
MANAGEMENT DISCUSSION AND ANALYSIS
==============================================================================
The Treasury Total Return Fund seeks the highest level of total return over
the long term, consistent with the protection of capital, by investing
primarily in direct obligations of the United States Treasury. High current
income is a secondary objective. For the fiscal year ended March 31, 1996, the
Fund's total return (excluding the impact of the maximum 4% front-end sales
load) was 2.95%, as compared to 10.55% for the Merrill Lynch Treasuries (All
Maturities) Index.
Following a series of Federal Funds rate increases in 1994, the economy
moderated notably in 1995. By mid-year, economic reports indicated that the
manufacturing sector was contracting and that gross domestic product (GDP) was
virtually stagnant. The Federal Reserve Board, noting the lack of inflationary
pressures, opted to reverse course and lowered short-term interest rates in
the first of three easing moves totaling .75%. Intermediate and long-term
rates followed suit, declining approximately 2%. However, economic growth
rebounded in the first quarter of 1996, reversing a year-long trend of
declining interest rates, highlighting the potential for inflation and
increasing bond price volatility.
In response to the economic surge in 1994, management moved the investment
portfolio of the Fund into short-term Treasury issues and cash equivalents in
early 1995. This cautious outlook came on the heels of one of the worse
one-year periods in bond market history. Based on the uncertainty and
volatility that was characteristic of the bond market in the first half of
1995, management deemed it prudent to remain invested in short-term
maturities. As the economy moderated and the Federal Reserve Board utilized
monetary policy to stimulate economic activity, the pull-back in bond prices
anticipated by management never materialized. The Fund remained invested in
short-term obligations for the balance of the year and, as a result,
underperformed the peer group.
The current economic environment is a challenging one for fixed-income
investors. The economy appears to be rebounding solidly following a harsh
winter with muted economic activity. Growth in the first quarter of 1996 came
in much stronger than expected, exacerbating the sell-off in the bond market
which began in January. The short-term nature of the securities in the Fund
has benefitted performance in recent months, helping to mitigate the impact of
a 1% rise in long-term rates. Longer term, management anticipates moderate
growth in the economy and low inflation. The maturities of the U.S. Treasury
obligations in which the Fund invests will continue to be allocated based upon
projected interest rate trends.
<PAGE>
UTILITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
==============================================================================
The Utility Fund seeks a high level of current income by investing primarily
in securities of public utilities. Capital appreciation is a secondary
objective. The Fund's total returns for the fiscal year ended March 31, 1996
(excluding the impact of the maximum 4% front-end sales load on Class A
shares) were 21.65% and 20.78% for Class A shares and Class C shares,
respectively.
Interest rates remained at low levels throughout 1995 providing a healthy
environment for utility stocks. The utility market followed the general stock
market in producing impressive returns for the year. This was a dramatic
turnaround from the disappointing performance of utility stocks during 1994.
Competition and its impact on utility stocks received much discussion as
electric utility companies now face deregulation and increased competition
(brought on by the Energy Act of 1992). Telecommunications companies are also
undergoing change and will soon be allowed to enter the long distance and
cable markets. In the first quarter of 1996, as interest rates moved higher,
stock and utility markets diverged with stocks largely performing well and
utilities showing weakness. For the twelve months ended March 31, 1996, the
S&P Utility Index returned 26.61%.
Throughout the fiscal year, the Fund maintained a diversified portfolio that
consisted of electric, gas, water and telecommunications utility stocks.
Management's focus has been on quality utility companies that are positioned
favorably for increased competition with better than average potential for
earnings and dividend growth. Comparative performance of the Fund to the S&P
Utility Index was influenced by the growth-oriented concentration of the Index
with heavy weightings in telecommunications and technology sectors, whereas
the Fund focused more on higher-yielding utility holdings. Top performing
stocks for the Fund included GTE Corp. (the largest non-Bell
telecommunications system), Duke Power Co. (a Carolinas-based electric
utility) and MCN Corp. (a Michigan-based natural gas utility).
Looking forward, we anticipate moderate growth in the economy and low
inflation which would likely keep interest rates at their current levels or
lower and bode well for utility stocks. Earnings growth in this sector,
partially due to cost containment efforts, should continue and translate into
better dividend growth. The recent rise in interest rates and related decline
in utility stock prices is presenting the Fund with an opportunity to buy into
healthy utility companies at improved values. Management believes the Fund is
well-positioned to take advantage of such buying opportunities and benefit
from the earnings and dividend growth projected for the utility market.
<PAGE>
EQUITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
==============================================================================
The Equity Fund seeks long-term capital appreciation by investing primarily in
common stocks of companies that offer growth potential. The Fund's total
returns for the fiscal year ended March 31, 1996 (excluding the impact of the
maximum 4% front-end sales load for Class A shares) were 27.90% and 26.90% for
Class A shares and Class C shares, respectively.
Growth in the economy advanced at a more moderate pace during 1995. Inflation
remained subdued and interest rates moved lower. These factors, combined with
strong corporate earnings reports, provided a healthy environment for the
stock market. Large capitalization stocks were the investments of choice and
proved to be the clear market leaders. In the first quarter of 1996, equities
continued their upward trend, despite increased volatility and speculation
that the economy might be stronger than anticipated. Steady inflows of money
pouring into stocks have kept the equity markets near record high levels. For
the twelve months ended March 31, 1996, the S&P 500 Index returned 32.10%.
Throughout the fiscal year, the Fund maintained a disciplined approach to
investing and remained well-diversified. Management continued to emphasize
quality, growth-oriented companies with above average long-term prospects
utilizing criteria such as identified competitive advantages and strong,
consistent earnings growth. Exposure to the technology and health-related
sectors of the market and emphasis on large-cap growth stocks helped
contribute to the Fund's total return and comparative performance for the
fiscal year ended March 31, 1996. Top performing stocks for the Fund included
Loral Corp. (acquired at a premium by Lockheed Martin Corp.), Gap, Inc., and
United Healthcare Corp.
Additional upward movements in interest rates could put near-term pressure on
stock prices. However, our outlook for the stock market remains positive as we
expect inflation to stay under control and the economy to experience moderate
growth. Corporate profits should continue their upward path as profits margins
improve, but not at the accelerated pace witnessed in 1995. In response,
management anticipates maintaining the Fund's exposure to the technology and
health-care sectors to benefit from corporate productivity enhancements and
the population's aging trend. As opportunities arise, the Fund will continue
to invest in quality companies that are well-positioned for the future.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
===================================================================================================================
U.S. TREASURY
GOVERNMENT TOTAL
SECURITIES RETURN
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C>
At acquisition cost.................................................... $ 24,581,898 $ 15,539,375
=============== ===============
At amortized cost...................................................... $ 24,557,654 $ 15,523,699
=============== ===============
At value (Note 2)...................................................... $ 24,457,770 $ 15,234,526
Investments in repurchase agreements (Note 2)............................. 246,000 --
Cash ..................................................................... 274 49,765
Receivable for capital shares sold........................................ 827 584
Interest receivable....................................................... 280,964 135,097
Other assets.............................................................. 2,850 2,749
--------------- ---------------
TOTAL ASSETS........................................................... 24,988,685 15,422,721
--------------- --------------
LIABILITIES
Payable for capital shares redeemed....................................... 17,217 53,373
Dividends payable......................................................... 21,765 7,316
Payable to affiliates (Note 4)............................................ 21,161 13,504
Other accrued expenses and liabilities.................................... 12,117 4,259
--------------- ---------------
TOTAL LIABILITIES...................................................... 72,260 78,452
--------------- ---------------
NET ASSETS ............................................................... $ 24,916,425 $ 15,344,269
=============== ===============
Net assets consist of:
Capital shares............................................................ $ 29,093,500 $ 17,704,643
Accumulated net realized losses from security transactions................ ( 4,077,191 ) ( 2,071,201 )
Net unrealized depreciation on investments................................ ( 99,884 ) ( 289,173 )
--------------- ---------------
Net assets................................................................ $ 24,916,425 $ 15,344,269
=============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5)........................... 2,642,220 1,866,811
=============== ===============
Net asset value and redemption price per share (Note 2)................... $ 9.43 $ 8.22
=============== ===============
Maximum offering price per share (Note 2)................................. $ 9.62 $ 8.56
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
===================================================================================================================
UTILITY EQUITY
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C>
At acquisition cost.................................................... $ 33,405,437 $ 7,422,385
=============== ===============
At amortized cost...................................................... $ 33,396,763 $ 7,422,385
=============== ===============
At value (Note 2)...................................................... $ 39,514,410 $ 9,156,557
Investments in repurchase agreements (Note 2)............................. 4,620,000 1,791,000
Cash ..................................................................... 210 510
Receivable for capital shares sold ....................................... 62,725 2,581
Dividends and interest receivable......................................... 153,511 7,502
Other assets.............................................................. 5,952 1,185
--------------- ---------------
TOTAL ASSETS........................................................... 44,356,808 10,959,335
--------------- ---------------
LIABILITIES
Payable for capital shares redeemed....................................... 139,483 6,079
Dividends payable......................................................... 41,688 343
Payable to affiliates (Note 4)............................................ 49,940 7,290
Other accrued expenses and liabilities ................................... 15,450 7,500
--------------- ---------------
TOTAL LIABILITIES...................................................... 246,561 21,212
--------------- ---------------
NET ASSETS ............................................................... $ 44,110,247 $ 10,938,123
--------------- ---------------
Net assets consist of:
Capital shares ........................................................... $ 38,023,127 $ 9,469,795
Accumulated net realized losses from security transactions................ ( 30,527 ) ( 265,871 )
Accumulated undistributed net investment income........................... -- 27
Net unrealized appreciation on investments ............................... 6,117,647 1,734,172
--------------- ---------------
Net assets ............................................................... $ 44,110,247 $ 10,938,123
=============== ===============
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ................................ $ 40,424,488 $ 8,501,862
=============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5)........................... 3,302,863 682,935
=============== ===============
Net asset value and redemption price per share (Note 2)................... $ 12.24 $ 12.45
=============== ===============
Maximum offering price per share (Note 2)................................. $ 12.75 $ 12.97
=============== ===============
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ................................ $ 3,685,759 $ 2,436,261
=============== ===============
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) (Note 5)........................... 301,479 195,573
=============== ===============
Net asset value, offering price and redemption price per share (Note 2)... $ 12.23 $ 12.46
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
===================================================================================================================
U.S. TREASURY
GOVERNMENT TOTAL
SECURITIES RETURN
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest............................................................... $ 1,861,030 $ 1,267,152
--------------- ---------------
EXPENSES
Investment advisory fees (Note 4)...................................... 199,075 161,371
Accounting services fees (Note 4)...................................... 39,750 33,750
Transfer agent fees (Note 4)........................................... 24,940 40,423
Postage and supplies................................................... 15,597 28,136
Professional fees...................................................... 13,631 7,661
Registration fees...................................................... 7,767 9,365
Custodian fees......................................................... 9,215 6,413
Trustees' fees and expenses............................................ 5,503 5,503
Insurance expense...................................................... 4,362 3,487
Distribution expenses (Note 4)......................................... 2,528 2,317
Reports to shareholders................................................ 2,597 4,153
Other expenses......................................................... 2,555 2,178
--------------- ---------------
TOTAL EXPENSES....................................................... 327,520 304,757
Fees waived by the Adviser (Note 4).................................... ( 9,000 ) ( 35,800 )
--------------- ---------------
NET EXPENSES......................................................... 318,520 268,957
--------------- ---------------
NET INVESTMENT INCOME .................................................... 1,542,510 998,195
--------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions.......................... 1,132,774 19,746
Net change in unrealized appreciation/depreciation on investments...... ( 506,128 ) ( 305,916 )
--------------- ---------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ................ 626,646 ( 286,170 )
--------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................... $ 2,169,156 $ 712,025
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
===================================================================================================================
UTILITY EQUITY
FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Dividends ............................................................. $ 1,761,248 $ 112,004
Interest .............................................................. 521,903 71,086
--------------- ---------------
TOTAL INVESTMENT INCOME ............................................. 2,283,151 183,090
--------------- ---------------
EXPENSES
Investment advisory fees (Note 4) ..................................... 328,982 58,991
Accounting services fees (Note 4) ..................................... 45,000 45,000
Transfer agent fees, Class A (Note 4).................................. 42,457 12,000
Transfer agent fees, Class C (Note 4).................................. 12,000 12,000
Distribution expenses, Class A (Note 4) ............................... 45,893 556
Distribution expenses, Class C (Note 4) ............................... 22,116 5,545
Postage and supplies................................................... 27,742 7,757
Registration fees, Common ............................................. 4,907 2,617
Registration fees, Class A ............................................ 3,931 2,539
Registration fees, Class C ............................................ 2,479 2,569
Professional fees ..................................................... 13,785 8,684
Custodian fees ........................................................ 6,387 5,979
Trustees' fees and expenses ........................................... 5,503 5,503
Reports to shareholders ............................................... 5,846 1,105
Insurance expense ..................................................... 5,496 1,365
Other expenses ........................................................ 3,712 1,474
--------------- ---------------
TOTAL EXPENSES ...................................................... 576,236 173,684
Fees waived by the Adviser (Note 4).................................... -- ( 53,777 )
Class A expenses reimbursed by the Adviser (Note 4).................... -- ( 5,308 )
--------------- ---------------
NET EXPENSES ........................................................ 576,236 114,599
--------------- ---------------
NET INVESTMENT INCOME .................................................... 1,706,915 68,491
--------------- ---------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions ......................... 338,447 292,780
Net change in unrealized appreciation/depreciation on investments...... 6,353,364 1,472,570
--------------- ---------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ......................... 6,691,811 1,765,350
--------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .............................. $ 8,398,726 $ 1,833,841
=============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET
ASSETS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
===================================================================================================================
U.S. GOVERNMENT TREASURY TOTAL
SECURITIES FUND RETURN FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income........................ $ 1,542,510 $ 2,181,908 $ 998,195 $ 1,408,592
Net realized gains (losses) from
security transactions...................... 1,132,774 ( 5,097,610) 19,746 ( 1,660,245)
Net change in unrealized appreciation/
depreciation on investments................ ( 506,128) 2,526,800 ( 305,916 ) ( 348,543)
------------ ------------- ------------- ------------
Net increase (decrease) in net assets from
operations................................. 2,169,156 ( 388,902) 712,025 ( 600,196)
------------ ------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................... ( 1,542,510) ( 2,181,908) ( 998,195) ( 1,408,592)
From net realized gains from security
transactions.............................. -- ( 128,416) -- --
------------ ------------- ------------- ------------
Decrease in net assets from distributions to
shareholders.............................. ( 1,542,510) ( 2,310,324) ( 998,195) ( 1,408,592)
------------ ------------- ------------- ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from shares sold.................... 3,262,088 4,299,872 541,010 3,955,275
Net asset value of shares issued in reinvestment
of distributions to shareholders........... 1,232,943 1,876,091 863,694 1,234,357
Payments for shares redeemed................. ( 6,379,727) ( 17,781,225) ( 11,748,023) ( 9,480,316)
------------ ------------- ------------- ------------
Net decrease in net assets from capital
share transactions........................... ( 1,884,696) ( 11,605,262) ( 10,343,319) ( 4,290,684)
------------ ------------- ------------- ------------
TOTAL DECREASE IN NET ASSETS ................... ( 1,258,050) ( 14,304,488) ( 10,629,489) ( 6,299,472)
NET ASSETS:
Beginning of year............................ 26,174,475 40,478,963 25,973,758 32,273,230
------------ ------------- ------------- ------------
End of year.................................. $ 24,916,425 $ 26,174,475 $ 15,344,269 $ 25,973,758
============ ============= ============= ============
ACCUMULATED UNDISTRIBUTED NET
INVESTMENT INCOME ........................... $ -- $ -- $ -- $ --
============ ============= ============= ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
===================================================================================================================
UTILITY EQUITY
FUND FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income........................ $ 1,706,915 $ 1,748,651 $ 68,491 $ 88,431
Net realized gains (losses)
from security transactions................. 338,447 ( 330,519) 292,780 ( 558,651)
Net change in unrealized appreciation/
depreciation on investments................ 6,353,364 91,379 1,472,570 983,919
------------ ------------- ------------- ------------
Net increase in net assets from operations...... 8,398,726 1,509,511 1,833,841 513,699
------------ ------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income, Class A.......... ( 1,586,046) ( 1,651,628) ( 59,987) ( 64,588)
From net investment income, Class C.......... ( 120,869) ( 97,023) ( 8,477) ( 25,618)
------------ ------------- ------------- ------------
Decrease in net assets from distributions
to shareholders.............................. ( 1,706,915) ( 1,748,651) ( 68,464) ( 90,206)
------------ ------------- ------------- ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
CLASS A
Proceeds from shares sold.................... 5,363,503 8,624,377 4,389,037 1,844,954
Net asset value of shares issued in
reinvestment of distributions to shareholders 1,407,457 1,451,000 57,517 61,635
Payments for shares redeemed................. ( 12,476,946) ( 10,224,952) ( 1,513,954) ( 1,218,368)
------------ ------------- ------------- ------------
Net increase (decrease) in net assets from
Class A share transactions................... ( 5,705,986) ( 149,575) 2,932,600 688,221
------------ ------------- ------------- ------------
CLASS C
Proceeds from shares sold.................... 1,386,159 2,807,607 485,970 341,886
Net asset value of shares issued in
reinvestment of distributions to shareholders 111,439 91,538 8,355 24,412
Payments for shares redeemed................. ( 1,984,950) ( 1,012,792) ( 549,348) ( 4,386,211)
------------ ------------- ------------- ------------
Net increase (decrease) in net assets from
Class C share transactions................... ( 487,352) 1,886,353 ( 55,023) ( 4,019,913)
------------ ------------- ------------- ------------
Net increase (decrease) from capital
share transactions......................... ( 6,193,338) 1,736,778 2,877,577 ( 3,331,692)
------------ ------------- ------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....... 498,473 1,497,638 4,642,954 ( 2,908,199)
NET ASSETS:
Beginning of year............................ 43,611,774 42,114,136 6,295,169 9,203,368
------------ ------------- ------------- ------------
End of year.................................. $ 44,110,247 $ 43,611,774 $ 10,938,123 $ 6,295,169
============ ============= ============= ============
ACCUMULATED UNDISTRIBUTED NET
INVESTMENT INCOME ......................... $ -- $ -- $ 27 $ --
============ ============= ============= ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 9.22 $ 9.85 $ 10.47 $ 10.18 $ 10.04
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income........................ 0.56 0.58 0.64 0.69 0.79
Net realized and unrealized
gains (losses) on investments.............. 0.21 ( 0.59) ( 0.59) 0.47 0.14
---------- ---------- ---------- ---------- ----------
Total from investment operations................ 0.77 ( 0.01) 0.05 1.16 0.93
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income......... ( 0.56 ) ( 0.58) ( 0.64) ( 0.69 ) ( 0.79 )
Distributions from net realized gains........ -- ( 0.04) ( 0.03) ( 0.18 ) --
---------- ---------- ---------- ---------- ----------
Total distributions............................. ( 0.56 ) ( 0.62) ( 0.67) ( 0.87 ) ( 0.79 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 9.43 $ 9.22 $ 9.85 $ 10.47 $ 10.18
========== ========== ========== ========== ==========
Total return(A) ................................ 8.39% 0.06% 0.30% 11.71% 9.46%
========== ========== ========== ========== ==========
Net assets at end of year (000's) .............. $24,916 $ 26,174 $ 40,479 $ 31,633 $ 40,253
========== ========== ========== ========== ==========
Ratio of expenses to average net assets(B) ..... 1.20% 1.20% 1.20% 1.20% 1.19%
Ratio of net investment income to average
net assets.................................. 5.82% 6.26% 6.14% 6.61% 7.73%
Portfolio turnover rate......................... 160% 205% 246% 188% 55%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales
loads.
(B)Absent fee waivers by the Adviser, the ratio of expenses to average net
assets would have been 1.24% for the year ended March 31, 1996 (Note 4).
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 8.36 $ 8.95 $ 9.70 $ 9.10 $ 9.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income........................ 0.38 0.43 0.37 0.55 0.60
Net realized and unrealized
gains (losses) on investments.............. ( 0.14 ) ( 0.59) ( 0.39) 0.87 0.17
---------- ---------- ---------- ---------- ----------
Total from investment operations................ 0.24 ( 0.16) ( 0.02) 1.42 0.77
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income(A) .... ( 0.38 ) ( 0.43) ( 0.37) ( 0.55 ) ( 0.60 )
Distributions from net realized gains(A) .... -- -- ( 0.36) ( 0.27 ) ( 0.07 )
---------- ---------- ---------- ---------- ----------
Total distributions............................. ( 0.38 ) ( 0.43) ( 0.73) ( 0.82 ) ( 0.67 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 8.22 $ 8.36 $ 8.95 $ 9.70 $ 9.10
========== ========== ========== ========== ==========
Total return(B) ................................ 2.95% (1.75%) ( 0.54%) 16.21% 8.98%
========== ========== ========== ========== ==========
Net assets at end of year (000's)............... $15,344 $ 25,974 $ 32,190 $ 43,427 $ 49,071
========== ========== ========== ========== ==========
Ratio of expenses to average net assets(C) ..... 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net assets................................. 4.66% 5.06% 3.84% 5.82% 6.58%
Portfolio turnover rate......................... 0% 63% 526% 161% 130%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)For the years ended prior to March 31, 1993, the per share data was
calculated using average shares outstanding throughout each year, whereas
for the years ended March 31, 1993 and thereafter, the per share data was
calculated based upon actual distributions. Actual distributions per share
based upon the actual number of shares outstanding on the ex-dividend date
of distribution amounted to $.61 from net investment income and $.08 from
net realized gains for the year ended March 31, 1992.
(B)The total returns shown do not include the effect of applicable sales
loads.
(C)Absent fee waivers by the Adviser, the ratios of expenses to average net
assets would have been 1.42% and 1.37% for the years ended March 31, 1996
and 1995, respectively (Note 4).
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS A
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
===================================================================================================================
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year............ $ 10.47 $ 10.52 $ 11.34 $ 10.58 $ 10.01
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income........................ 0.47 0.43 0.37 0.48 0.51
Net realized and unrealized
gains (losses) on investments.............. 1.77 ( 0.05) ( 0.59) 1.62 0.75
---------- ---------- ---------- ---------- ----------
Total from investment operations................ 2.24 0.38 ( 0.22) 2.10 1.26
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (A) .... ( 0.47 ) ( 0.43) ( 0.37) ( 0.48 ) ( 0.51 )
Distributions from net realized gains(A) .... -- -- ( 0.23) ( 0.86 ) ( 0.18 )
---------- ---------- ---------- ---------- ----------
Total distributions............................. ( 0.47 ) ( 0.43) ( 0.60) ( 1.34 ) ( 0.69 )
---------- ---------- ---------- ---------- ----------
Net asset value at end of year.................. $ 12.24 $ 10.47 $ 10.52 $ 11.34 $ 10.58
========== ========== ========== ========== ==========
Total return(B) ................................ 21.65% 3.68% ( 2.11%) 20.64% 11.84%
========== ========== ========== ========== ==========
Net assets at end of year (000's)............... $40,424 $ 40,012 $ 40,373 $ 42,051 $ 29,398
========== ========== ========== ========== ==========
Ratio of expenses to average net assets......... 1.25% 1.25% 1.25% 1.40% 1.63%
Ratio of net investment income to average
net assets................................. 3.97% 4.06% 3.32% 4.41% 4.83%
Portfolio turnover rate......................... 11% 17% 91% 137% 33%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)For the years ended prior to March 31, 1993, the per share data was
calculated using average shares outstanding throughout each year, whereas
for the years ended March 31, 1993 and thereafter, the per share data was
calculated based upon actual distributions. Actual distributions per share
based upon the actual number of shares outstanding on the ex-dividend date
of distribution amounted to $.48 from net investment income and $.13 from
net realized capital gains for the year ended March 31, 1992.
(B)The total returns shown do not include the effect of applicable sales
loads.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND - CLASS C
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.46 $ 10.51 $ 11.55
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.37 0.35 0.23
Net realized and unrealized gains (losses) on
investments......................................... 1.78 ( 0.04) (0.81)
--------------- --------------- ---------------
Total from investment operations.......................... 2.15 0.31 ( 0.58 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.38 ) ( 0.36 ) ( 0.23 )
Distributions from net realized gains.................. -- -- ( 0.23 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.38 ) ( 0.36 ) ( 0.46 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.23 $ 10.46 $ 10.51
=============== =============== ===============
Total return(A) .......................................... 20.78% 3.00% ( 7.89%) (B)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 3,686 $ 3,599 $ 1,742
=============== =============== ===============
Ratio of expenses to average net assets .................. 2.00% 2.00% 2.00% (B)
Ratio of net investment income to average net assets ..... 3.19% 3.41% 2.19% (B)
Portfolio turnover rate................................... 11% 17% 91% (B)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales
loads.
(B)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS A
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (AUG. 2, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 9.84 $ 9.26 $ 10.02
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.13 0.15 0.08
Net realized and unrealized gains (losses) on
investments........................................ 2.60 0.59 ( 0.34)
--------------- --------------- ---------------
Total from investment operations.......................... 2.73 0.74 ( 0.26 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.12 ) ( 0.16 ) ( 0.08 )
Distributions from net realized gains.................. -- -- ( 0.42 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.12 ) ( 0.16 ) ( 0.50 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.45 $ 9.84 $ 9.26
=============== =============== ===============
Total return(A) .......................................... 27.90% 8.07% ( 3.98%) (C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 8,502 $ 4,300 $ 3,346
=============== =============== ===============
Ratio of expenses to average net assets(B) .............. 1.25% 1.25% 1.24% (C)
Ratio of net investment income to average net assets ..... 1.06% 1.57% 0.82% (C)
Portfolio turnover rate................................... 38% 159% 109% (C)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales
loads.
(B)Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 2.02%, 1.94% and
2.04%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively
(Note 4).
(C)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND - CLASS C
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
===================================================================================================================
FROM DATE OF
PUBLIC OFFERING
YEAR YEAR (JUNE 7, 1993)
ENDED ENDED THROUGH
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period.................... $ 9.86 $ 9.26 $ 10.00
--------------- --------------- ---------------
Income from investment operations:
Net investment income.................................. 0.05 0.10 0.03
Net realized and unrealized gains (losses) on
investments......................................... 2.60 0.57 ( 0.32)
--------------- --------------- ---------------
Total from investment operations.......................... 2.65 0.67 ( 0.29 )
--------------- --------------- ---------------
Less distributions:
Dividends from net investment income................... ( 0.05 ) ( 0.07 ) ( 0.03 )
Distributions from net realized gains.................. -- -- ( 0.42 )
--------------- --------------- ---------------
Total distributions....................................... ( 0.05 ) ( 0.07 ) ( 0.45 )
--------------- --------------- ---------------
Net asset value at end of period.......................... $ 12.46 $ 9.86 $ 9.26
=============== =============== ===============
Total return(A) .......................................... 26.90% 7.32% ( 3.58%) (C)
=============== =============== ===============
Net assets at end of period (000's)....................... $ 2,436 $ 1,995 $ 5,857
=============== =============== ===============
Ratio of expenses to average net assets(B) .............. 2.00% 2.00% 1.94% (C)
Ratio of net investment income to average net assets ..... 0.38% 0.68% 0.58% (C)
Portfolio turnover rate................................... 38% 159% 109% (C)
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(A)The total returns shown do not include the effect of applicable sales
loads.
(B)Absent fee waivers and/or expense reimbursements by the Adviser, the
ratios of expenses to average net assets would have been 2.70%, 2.50% and
2.33%(C) for the periods ended March 31, 1996, 1995 and 1994, respectively
(Note 4).
(C)Annualized.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
==============================================================================
1. ORGANIZATION
The U.S. Government Securities Fund, the Treasury Total Return Fund, the
Utility Fund and the Equity Fund (collectively, the Funds) are each a
diversified series of shares of Midwest Strategic Trust (the Trust). The Trust
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Trust was established as a
Massachusetts business trust under a Declaration of Trust dated November 18,
1982. The Declaration of Trust, as amended, permits the Trustees to issue an
unlimited number of shares of each Fund.
The U.S. Government Securities Fund seeks high current income, consistent with
the protection of capital, by investing primarily in obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies or instrumentalities (U.S. Government obligations). It is anticipated
that the Fund will invest primarily in mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association, the Federal Home
Loan Mortgage Corporation or the Federal National Mortgage Association.
The Treasury Total Return Fund seeks the highest level of total return over
the long term, consistent with the protection of capital, by investing
primarily in direct obligations of the United States Treasury. High current
income is a secondary objective. The maturities of the U.S. Treasury
obligations in which the Fund invests will be allocated based upon interest
rate trends projected by the Adviser.
The Utility Fund seeks a high level of current income by investing primarily
in securities of public utilities. Capital appreciation is a secondary
objective.
The Equity Fund seeks long-term capital appreciation by investing primarily in
common stocks which are believed by the Adviser to offer growth potential.
The Utility Fund and the Equity Fund each offer two classes of shares: Class A
shares (sold subject to a maximum 4% front-end sales load and a distribution
fee of up to .25% of average daily net assets) and Class C shares (sold
subject to a maximum contingent deferred sales load of 1% if redeemed within a
one-year period from purchase and a distribution fee of up to 1% of average
daily net assets). Each Class A and Class C share of a Fund represents an
identical interest in the investment portfolio of such Fund and has the same
rights, except that (i) Class C shares bear the expenses of higher
distribution fees, which is expected to cause Class C shares to have a higher
expense ratio and to pay lower dividends than those related to Class A shares;
(ii) certain other class specific expenses will be borne solely by the class
to which such expenses are attributable; and (iii) each class has exclusive
rights with respect to matters relating to its own distribution arrangements.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(currently 4:00 p.m., Eastern time). U.S. Government obligations and
mortgage-backed securities are generally valued at their most recent bid price
as obtained from one or more of the major market makers for such securities or
are valued based on estimates of market values obtained from yield data
relating to instruments or securities with similar characteristics. Portfolio
securities listed on stock exchanges and securities traded in the
over-the-counter market are valued at the last sales price as of the close of
business on the day the securities are being valued. Securities not traded on
a particular day, or for which the last sale price is not readily available,
are valued at the closing bid price quoted by brokers that make markets in the
securities. On limited occasions, if the valuation provided by a pricing
service ignores certain market conditions affecting the value of a security,
or if the pricing service cannot provide a valuation, the fair value of the
security will be determined in good faith consistent with procedures
established by the Board of Trustees.
Repurchase agreements -- Repurchase agreements, which are collateralized by
U.S. Government obligations, are valued at cost which, together with accrued
interest, approximates market. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' custodian, at the
Federal Reserve Bank of Cleveland. At the time a Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the value
of the repurchase agreement. Each Fund enters into repurchase agreements only
with institutions deemed to be creditworthy by the Adviser, including banks
having assets in excess of $10 billion and primary U.S. Government securities
dealers.
Share valuation -- The net asset value of each of the U.S. Government
Securities Fund and the Treasury Total Return Fund is calculated daily by
dividing the total value of each Fund's assets, less liabilities, by the
number of shares outstanding. The maximum offering price per share of the U.S.
Government Securities Fund is equal to net asset value per share plus a sales
load equal to 2.04% of net asset value (or 2% of the offering price). The
maximum offering price per share of the Treasury Total Return Fund is equal to
net asset value per share plus a sales load equal to 4.17% of net asset value
(or 4% of the offering price). The redemption price per share of each Fund is
equal to the net asset value per share.
The net asset value of Class A shares and Class C shares of each of the
Utility Fund and the Equity Fund is calculated daily for each class by
dividing the total value of the Fund's assets attributable to that class, less
liabilities attibutable to that class, by the number of shares of that class
outstanding. The maximum offering price of Class A shares of each Fund is
equal to net asset value per share plus a sales load equal to 4.17% of net
asset value (or 4% of the offering price). The offering price of Class C
shares of each Fund is equal to net asset value per share.
The redemption price per share of Class A shares and Class C shares of each of
the Utility Fund and the Equity Fund is equal to the net asset value per
share. However, Class C shares of the Utility Fund and the Equity Fund are
each subject to a contingent deferred sales load of 1% of the original
purchase price if redeemed within a one-year period from the date of purchase.
<PAGE>
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities
purchased are amortized in accordance with income tax regulations which
approximate generally accepted accounting principles.
Distributions to shareholders -- Dividends from net investment income are
declared daily and paid on the last business day of each month to shareholders
of the U.S. Government Securities Fund and the Treasury Total Return Fund.
Dividends from net investment income are declared and paid quarterly to
shareholders of the Utility Fund and the Equity Fund. With respect to each
Fund, net realized short-term capital gains, if any, may be distributed
throughout the year and net realized long-term capital gains, if any, are
distributed at least once each year. Income distributions and capital gain
distributions are determined in accordance with income tax regulations.
Allocations between classes -- Investment income earned, realized capital
gains and losses, and unrealized appreciation and depreciation for the Utility
Fund and the Equity Fund is allocated daily to each class of shares based upon
its proportionate share of total net assets of the Fund. Class specific
expenses are charged directly to the class incurring the expense. Common
expenses which are not attributable to a specific class are allocated daily to
each class of shares based upon its proportionate share of total net assets of
the Fund.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Securities traded on a to-be-announced basis -- The U.S. Government Securities
Fund frequently trades portfolio securities on a "to-be-announced" (TBA)
basis. In a TBA transaction, the Fund has committed to purchase securities for
which all specific information is not yet known at the time of the trade,
particularly the face amount in mortgage-backed securities transactions.
Securities purchased on a TBA basis are not settled until they are delivered
to the Fund, normally 15 to 45 days later. These transactions are subject to
market fluctuations and their current value is determined in the same manner
as for other portfolio securities. When effecting such transactions, assets of
a dollar amount sufficient to make payment for the portfolio securities to be
purchased are placed in a segregated account on the trade date.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code available to regulated investment
companies. As provided therein, in any fiscal year in which a Fund so
qualifies, and distributes at least 90% of its taxable net income, the Fund
(but not the shareholders) will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes is made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during
the twelve months ending October 31) plus undistributed amounts from prior
years.
<TABLE>
The following information is based upon the federal income tax cost of
portfolio investments (excluding repurchase agreements) as of March 31, 1996:
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
U.S. GOVT. TREASURY TOTAL
SECURITIES RETURN UTILITY EQUITY
FUND FUND FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized appreciation................... $ 94,194 $ 3,428 $ 6,419,511 $ 1,875,191
Gross unrealized depreciation................... ( 194,078) ( 292,601) ( 301,864) ( 141,019)
------------ ------------- ------------- ------------
Net unrealized appreciation (depreciation)...... $ ( 99,884) $ ( 289,173) $ 6,117,647 $ 1,734,172
============ ============= ============= ============
Federal income tax cost......................... $ 24,557,654 $ 15,523,699 $ 33,396,763 $ 7,422,385
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1996, the U.S. Government Securities Fund, the Treasury Total
Return Fund, the Utility Fund and the Equity Fund had capital loss
carryforwards for federal income tax purposes of $4,077,191, $2,071,201,
$30,527 and $265,871, respectively, none of which expire until at least March
31, 2002. These capital loss carryforwards may be utilized in future years to
offset net realized capital gains prior to distributing such gains to
shareholders.
<PAGE>
3. INVESTMENT TRANSACTIONS
<TABLE>
Investment transactions (excluding short-term investments) were as follows for
the year ended March 31, 1996:
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
U.S. GOVT. TREASURY TOTAL
SECURITIES RETURN UTILITY EQUITY
FUND FUND FUND FUND
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases of investment securities............. $ 41,611,129 $ 9,509,531 $ 4,588,799 $ 5,107,424
============ ============= ============= ============
Proceeds from sales and maturities of
investment securities..................... $ 39,645,016 $ -- $ 12,070,713 $ 2,564,330
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
4. TRANSACTIONS WITH AFFILIATES
The President of the Trust is the controlling shareholder of Leshner
Financial, Inc., whose subsidiaries include Midwest Group Financial Services,
Inc. (the Adviser), the Trust's principal underwriter and investment adviser,
and MGF Service Corp. (MGF), the shareholder servicing and transfer agent and
accounting and pricing agent for the Trust.
MANAGEMENT AGREEMENTS
Each Fund's investments are managed by the Adviser under the terms of separate
Management Agreements. Under the terms of the Management Agreements, each Fund
pays the Adviser a fee, computed and accrued daily and paid monthly, at an
annual rate of 0.75% of its average daily net assets up to $200,000,000, 0.7%
of such net assets from $200,000,000 to $500,000,000 and 0.5% of such net
assets in excess of $500,000,000.
States in which shares of the Trust are offered may impose an expense
limitation based upon net assets. The Adviser has agreed to reimburse each
Fund for expenses which exceed the lowest applicable expense limitation of any
state. No such reimbursement was required for the year ended March 31, 1996.
In order to reduce the operating expenses of the U.S. Government Securities
Fund and the Treasury Total Return Fund, the Adviser voluntarily waived
advisory fees of $9,000 and $35,800, respectively, during the year. In order
to reduce the operating expenses of the Equity Fund, the Adviser voluntarily
waived advisory fees of $53,777 and reimbursed the Fund for $5,308 of Class A
expenses during the year.
<PAGE>
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement between the Trust and MGF, MGF maintains the records for
each shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of each Fund's shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. Under the terms of the Agreement, MGF receives for its
services a fee payable monthly at an annual rate of $21.00 per shareholder
account from each of the U.S. Government Securities Fund and the Treasury
Total Return Fund and $17.00 per shareholder account from each of the Utility
Fund and Equity Fund, subject to a $1,000 minimum monthly fee for each Fund,
or for each class of shares of a Fund, as applicable. In addition, each Fund
pays out-of-pocket expenses including, but not limited to, postage and
supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and
MGF, MGF calculates the daily net asset value per share and maintains the
financial books and records of each Fund. For these services, MGF receives a
monthly fee from each Fund. The monthly fee, based on current asset levels, is
$3,250 for the U.S. Government Securities Fund, $2,750 for the Treasury Total
Return Fund, and $3,500 for each of the Utility Fund and the Equity Fund. In
addition, each Fund pays certain out-of-pocket expenses incurred by MGF in
obtaining valuations of such Fund's portfollio securities.
UNDERWRITING AGREEMENT
The Adviser is the Funds' principal underwriter and, as such, acts as the
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and the Adviser, the Adviser earned
$704, $1,317, $11,472, and $1,625 from underwriting and broker commissions on
the sale of shares of the U.S. Government Securities Fund, the Treasury Total
Return Fund, the Utility Fund and the Equity Fund, respectively, for the year
ended March 31, 1996.
<PAGE>
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which shares of each
Fund having one class of shares and Class A shares of each Fund having two
classes of shares may directly incur or reimburse the Adviser for expenses
related to the distribution and promotion of shares. The annual limitation for
payment of such expenses under the Class A Plan is .25% of average daily net
assets attributable to such shares.
The Trust also has a Plan of Distribution (Class C Plan) under which Class C
shares of each Fund having two classes of shares may directly incur or
reimburse the Adviser for expenses related to the distribution and promotion
of shares. The annual limitation for payment of such expenses under the Class
C Plan is 1% of average daily net assets attributable to Class C shares.
<TABLE>
<CAPTION>
5. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes
in Net Assets are the result of the following share transactions for the years
ended March 31, 1996 and 1995:
- - -------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT TREASURY TOTAL
SECURITIES FUND RETURN FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..................................... 343,417 456,445 64,654 471,081
Shares issued in reinvestment of distributions
to shareholders.............................. 129,033 203,373 103,352 145,610
Shares redeemed................................. ( 667,998) ( 1,932,052) ( 1,406,629) ( 1,115,965)
------------ ------------- ------------- ------------
Net decrease in shares outstanding.............. ( 195,548) ( 1,272,234) ( 1,238,623) ( 499,274)
Shares outstanding, beginning of year........... 2,837,768 4,110,002 3,105,434 3,604,708
------------ ------------- ------------- ------------
Shares outstanding, end of year................. 2,642,220 2,837,768 1,866,811 3,105,434
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
<CAPTION>
UTILITY EQUITY
FUND FUND
1996 1995 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold..................................... 454,436 817,927 376,432 197,947
Shares issued in reinvestment of distributions
to shareholders.............................. 120,422 139,905 5,108 6,598
Shares redeemed................................. ( 1,093,005) ( 975,981) ( 135,368) ( 129,000)
------------ ------------- ------------- ------------
Net increase (decrease) in shares outstanding... ( 518,147) ( 18,149) 246,172 75,545
Shares outstanding, beginning of year........... 3,821,010 3,839,159 436,763 361,218
------------ ------------- ------------- ------------
Shares outstanding, end of year................. 3,302,863 3,821,010 682,935 436,763
============ ============= ============= ============
CLASS C
Shares sold..................................... 120,511 266,298 42,510 37,075
Shares issued in reinvestment of distributions
to shareholders.............................. 9,544 8,821 775 2,646
Shares redeemed................................. ( 172,643) ( 96,684) ( 50,111) ( 469,556)
------------ ------------- ------------- ------------
Net increase (decrease) in shares outstanding... ( 42,588) 178,435 ( 6,826) ( 429,835)
Shares outstanding, beginning of year........... 344,067 165,632 202,399 632,234
------------ ------------- ------------- ------------
Shares outstanding, end of year................. 301,479 344,067 195,573 202,399
============ ============= ============= ============
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
PAR MARKET
VALUE INVESTMENTS -- 98.2% VALUE
- - -------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
U.S. TREASURY OBLIGATIONS -- 13.3%
$ 2,000,000 U.S. Treasury Notes, 6.25%, 8/31/00.......................................... $ 2,010,624
1,000,000 U.S. Treasury Bonds, 10.75%, 8/15/05......................................... 1,298,125
- - -------------- -------------
$ 3,000,000 TOTAL U.S. TREASURY OBLIGATIONS (Amortized Cost $3,311,423).................. $ 3,308,749
- - -------------- -------------
U.S. GOVERNMENT AGENCY ISSUES -- 84.9%
$ 3,000,000 Federal Home Loan Mortgage Corp., 7.65%, 5/10/05............................. $ 3,061,209
2,000,000 Federal Home Loan Mortgage Corp., 7.05%, 6/8/05.............................. 1,997,852
1,815,095 Federal Home Loan Mortgage Corp. Pool #E00228, 6.50%, 7/1/08................. 1,786,018
2,000,000 Federal National Mortgage Assoc., 6.35%, 6/10/05............................. 1,964,628
1,153,307 Federal National Mortgage Assoc. Pool #50811, 7.50%, 12/1/12................. 1,159,119
1,754,569 Federal National Mortgage Assoc. Pool #190666, 7.00%, 3/1/14................. 1,730,286
2,867,460 Federal National Mortgage Assoc. Pool #220114, 7.00%, 6/1/23................. 2,799,501
1,986,700 Federal National Mortgage Assoc. Pool #317689, 6.50%, 8/1/25................. 1,887,355
2,983,237 Federal National Mortgage Assoc. Pool #317691, 7.00%, 8/1/25................. 2,906,776
1,950,777 Federal National Mortgage Assoc. Pool #63859, 6.50%, 9/1/25.................. 1,856,277
- - -------------- -------------
$ 21,511,145 TOTAL U.S. GOVERNMENT AGENCY ISSUES
- - --------------
(Amortized Cost $21,246,231)............................................. $ 21,149,021
-------------
$ 24,511,145 TOTAL INVESTMENTS AT VALUE-- 98.2%
==============
(Amortized Cost $24,557,654)............................................. $ 24,457,770
-------------
<CAPTION>
===================================================================================================================
FACE MARKET
AMOUNT REPURCHASE AGREEMENTS (1) -- 1.0% VALUE
- - -------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$ 246,000 Nesbitt Burns Securities, Inc., 5.00%, dated 3/29/96, due 4/1/96,
- - --------------
repurchase proceeds $246,103............................................. $ 246,000
-------------
$ 246,000 TOTAL REPURCHASE AGREEMENTS ................................................. $ 246,000
============== -------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS -- 99.2% ....................... $ 24,703,770
OTHER ASSETS AND LIABILITIES, NET-- 0.8% ................................... 212,655
-------------
NET ASSETS-- 100.0% ......................................................... $ 24,916,425
-------------
<FN>
(1)Repurchase agreements are fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TREASURY TOTAL RETURN FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
PAR MARKET
VALUE U.S. TREASURY OBLIGATIONS-- 99.3% VALUE
- - -------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$ 6,000,000 U.S. Treasury Notes, 6.25%, 8/31/96.......................................... $ 6,018,750
1,000,000 U.S. Treasury Notes, 6.00%, 10/15/99......................................... 1,000,000
8,500,000 U.S. Treasury Notes, 5.25%, 1/31/01.......................................... 8,215,776
- - -------------- -------------
$ 15,500,000 TOTAL U.S. TREASURY OBLIGATIONS
==============
(Amortized Cost $15,523,699)............................................. $ 15,234,526
-------------
OTHER ASSETS AND LIABILITIES, NET-- 0.7% ................................... 109,743
-------------
NET ASSETS-- 100.0% ......................................................... $ 15,344,269
-------------
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UTILITY FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
MARKET
COMMON STOCK -- 84.8% SHARES VALUE
- - -------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES -- 50.7%
<S> <C> <C>
Baltimore Gas & Electric Co................................................... 50,050 $ 1,382,631
CMS Energy Corp............................................................... 60,000 1,770,000
Central Louisiana Electric.................................................... 30,000 806,250
CINergy Corp.................................................................. 40,000 1,200,000
DPL, Inc...................................................................... 50,000 1,193,750
Dominion Resources, Inc....................................................... 45,000 1,783,125
Duke Power Co................................................................. 50,000 2,525,000
FPL Group, Inc................................................................ 50,000 2,262,500
Florida Progress Corp......................................................... 65,000 2,218,125
Kansas City Power & Light Co.................................................. 90,000 2,295,000
Montana Power Co.............................................................. 35,000 756,875
Northern States Power Co...................................................... 46,000 2,242,500
Scana Corp.................................................................... 70,000 1,925,000
-------------
......................................................................... $ 22,360,756
-------------
TELECOMMUNICATIONS -- 20.5%
Ameritech Corp................................................................ 35,000 $ 1,907,500
AT&T Corp..................................................................... 30,000 1,837,500
Bell Atlantic Corp............................................................ 20,000 1,235,000
BellSouth Corp................................................................ 50,000 1,850,000
GTE Corp...................................................................... 50,000 2,193,750
-------------
......................................................................... $ 9,023,750
-------------
GAS COMPANIES -- 10.5%
Indiana Energy, Inc........................................................... 15,000 $ 360,000
MCN Corp...................................................................... 100,000 2,312,500
Nicor, Inc.................................................................... 20,000 535,000
Oneok, Inc.................................................................... 25,000 596,875
Wicor, Inc.................................................................... 25,000 843,750
-------------
......................................................................... $ 4,648,125
-------------
WATER COMPANIES -- 3.1%
American Water Works, Inc..................................................... 35,000 $ 1,347,500
-------------
TOTAL COMMON STOCK (Cost $31,303,647)......................................... $ 37,380,131
-------------
<CAPTION>
===================================================================================================================
PAR MARKET
CORPORATE BONDS -- 4.8% VALUE VALUE
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dayton Power and Light, 8.40%, 12/1/22........................................ $ 1,000,000 $ 1,041,858
New York Telephone Co., 9.375%, 7/15/31....................................... 1,000,000 1,092,421
-------------- -------------
TOTAL CORPORATE BONDS (Amortized Cost $2,093,116)............................. $ 2,000,000 $ 2,134,279
-------------- -------------
TOTAL INVESTMENTS AT VALUE-- 89.6% (Amortized Cost $33,396,763)............... $ 39,514,410
-------------
<PAGE>
<CAPTION>
UTILITY FUND (CONTINUED)
===================================================================================================================
FACE MARKET
REPURCHASE AGREEMENTS(1) -- 10.5% VALUE VALUE
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nesbitt Burns Securities, Inc., 5.00%, dated 3/29/96, due 4/1/96,
repurchase proceeds $4,621,925........................................... $ 4,620,000 $ 4,620,000
-------------- -------------
TOTAL REPURCHASE AGREEMENTS .................................................. $ 4,620,000 $ 4,620,000
============== -------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 100.1% ................ $ 44,134,410
OTHER ASSETS AND LIABILITIES, NET-- (0.1%) ................................... ( 24,163 )
-------------
NET ASSETS-- 100.0% .......................................................... $ 44,110,247
-------------
<FN>
(1)Repurchase agreements are fully collateralized by U.S. Government obligations.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITY FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
===================================================================================================================
MARKET
COMMON STOCK -- 83.7% SHARES VALUE
- - -------------------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 21.1%
<S> <C> <C>
AT&T Corp..................................................................... 6,000 $ 367,500
Compaq Computer Corp.(1) ..................................................... 8,000 309,000
DSC Communications Corp....................................................... 14,000 378,000
Intel Corp.................................................................... 6,000 341,250
Loral Corp.................................................................... 11,000 539,000
Motorola, Inc................................................................. 7,000 371,000
-------------
......................................................................... $ 2,305,750
-------------
CONSUMER, NON-CYCLICAL -- 20.1%
Albertson's, Inc.............................................................. 7,400 $ 274,725
Bristol-Myers Squibb Co....................................................... 3,000 256,875
Mylan Laboratories............................................................ 16,000 336,000
Procter & Gamble Co........................................................... 4,000 339,000
Schering-Plough Corp.......................................................... 6,000 348,750
Unilever NV................................................................... 2,000 271,500
United Healthcare Corp........................................................ 6,000 369,000
-------------
......................................................................... $ 2,195,850
-------------
CONSUMER, CYCLICAL -- 15.0%
The Walt Disney Co............................................................ 2,623 $ 167,543
Ford Motor Co................................................................. 8,000 275,000
Gap, Inc...................................................................... 6,000 332,250
General Motors Corp., Class E................................................. 4,000 228,000
Lowe's Companies, Inc......................................................... 9,000 321,750
McDonald's Corp............................................................... 6,500 312,000
-------------
......................................................................... $ 1,636,543
-------------
FINANCIAL SERVICES -- 10.0%
AFLAC, Inc.................................................................... 6,750 $ 210,938
American General Corp......................................................... 8,600 296,700
American International Group.................................................. 3,000 280,875
Bank of New York Co., Inc..................................................... 6,000 309,000
-------------
......................................................................... $ 1,097,513
-------------
INDUSTRIAL -- 9.7%
Deere & Co.................................................................... 7,500 $ 313,125
Emerson Electric Co........................................................... 2,400 193,800
Nucor Corp.................................................................... 3,500 206,938
Sherwin-Williams Co........................................................... 7,800 346,125
-------------
......................................................................... $ 1,059,988
-------------
ENERGY -- 3.2%
Enron Corp.................................................................... 9,500 $ 350,313
-------------
CONGLOMERATES -- 2.5%
General Electric Co........................................................... 3,600 $ 280,350
-------------
<PAGE>
<CAPTION>
EQUITY FUND (CONTINUED)
===================================================================================================================
MARKET
SHARES VALUE
- - -------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 2.1%
<S> <C> <C>
Morton International, Inc..................................................... 6,000 $ 230,250
-------------
TOTAL COMMON STOCK (Cost $7,422,385).......................................... $ 9,156,557
-------------
<CAPTION>
===================================================================================================================
FACE MARKET
REPURCHASE AGREEMENTS(2) -- 16.4% AMOUNT VALUE
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nesbitt Burns Securities, Inc., 5.00%, dated 3/29/96, due 4/1/96,
repurchase proceeds $1,791,746........................................... $ 1,791,000 $ 1,791,000
-------------- -------------
TOTAL REPURCHASE AGREEMENTS .................................................. $ 1,791,000 $ 1,791,000
============== -------------
TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS AT VALUE-- 100.1% ................ $ 10,947,557
OTHER ASSETS AND LIABILITIES, NET-- (0.1%) .................................. ( 9,434 )
-------------
NET ASSETS-- 100.0% .......................................................... $ 10,938,123
-------------
<FN>
(1)Non-income producing security.
(2)Repurchase agreements are fully collateralized by U.S. Government
obligations.
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
==============================================================================
To the Shareholders and Board of Trustees of Midwest Strategic Trust:
We have audited the accompanying statements of assets and liabilities of the
Treasury Total Return Fund, Utility Fund, Equity Fund and U.S. Government
Securities Fund of the Midwest Strategic Trust (a Massachusetts business
trust), including the portfolios of investments, as of March 31, 1996, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of March 31, 1996, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Treasury Total Return Fund, Utility Fund, Equity Fund and U.S. Government
Securities Fund of the Midwest Strategic Trust as of March 31, 1996, the
results of their operations, the changes in their net assets, and the
financial highlights for the periods indicated thereon, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
April 26, 1996
<PAGE>
<TABLE>
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 8, 1995 (UNAUDITED)
==============================================================================
On December 8, 1995, a Special Meeting of Shareholders of the Trust was held
to elect Trustees to serve on the Board and to ratify or reject the selection
of Arthur Andersen LLP as the Trust's independent public accountants for the
current fiscal year. The total number of shares of the Trust present by proxy
represented 58.0% of the shares entitled to vote at the meeting.
The results of the voting for Trustees were as follows:
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------
WITHHOLD
NOMINEES FOR ELECTION AUTHORITY STATUS
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dale P. Brown 5,604,499.018 68,378.746 Incumbent
Gary W. Heldman 5,571,909.785 100,967.979 New Trustee
H. Jerome Lerner 5,600,680.140 72,197.624 New Trustee
Robert H. Leshner 5,597,856.794 75,020.970 Incumbent
Richard A. Lipsey 5,583,720.100 89,157.664 Incumbent
Donald J. Rahilly 5,590,326.361 82,551.403 Incumbent
Fred A. Rappoport 5,566,887.711 105,990.053 Incumbent
Oscar P. Robertson 5,605,767.904 67,109.860 New Trustee
Robert B. Sumerel 5,591,488.056 81,389.708 Incumbent
- - -------------------------------------------------------------------------------------------------------------------
<CAPTION>
The results of the voting for Arthur Andersen LLP by each Fund were as
follows:
- - -------------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
FOR AGAINST ABSTAIN
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Securities Fund 1,835,038.503 7,684.377 32,199.143
Treasury Total Return Fund 1,340,426.396 7,443.348 34,284.657
Utility Fund 2,032,011.308 10,400.155 40,223.035
Equity Fund 325,598.067 5,831.574 1,737.201
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix
A representation of the graphic material contained in the Midwest Strategic
Trust March 31, 1996 Annual Report is set forth below.
1. Comparison of the Change in Value of a $10,000 Investment in the
U.S. Government Securities Fund and the Lehman Brothers Mortgage-
Backed Securities Index.
LEHMAN BROTHERS MBS INDEX: U.S. GOVERNMENT SECURITIES FUND
QTLY QTLY
DATE RETURN BALANCE DATE RETURN BALANCE
03/31/86 10,000 03/31/86 9,800
06/30/86 0.66% 10,066 06/30/86 -0.62% 9,739
09/30/86 3.93% 10,462 09/30/86 3.26% 10,056
12/31/86 3.78% 10,857 12/31/86 3.64% 10,422
03/31/87 2.21% 11,097 03/31/87 2.14% 10,645
06/30/87 -1.37% 10,945 06/30/87 -2.63% 10,365
09/30/87 -2.08% 10,717 09/30/87 -4.12% 9,938
12/31/87 5.65% 11,323 12/31/87 6.63% 10,597
03/31/88 4.28% 11,807 03/31/88 3.42% 10,959
06/30/88 1.67% 12,005 06/30/88 1.44% 11,117
09/30/88 2.37% 12,289 09/30/88 2.16% 11,357
12/31/88 0.18% 12,311 12/31/88 0.63% 11,428
03/31/89 1.24% 12,464 03/31/89 0.66% 11,504
06/30/89 7.76% 13,431 06/30/89 5.05% 12,084
09/30/89 1.65% 13,653 09/30/89 0.85% 12,187
12/31/89 4.00% 14,199 12/31/89 3.47% 12,609
03/31/90 0.13% 14,217 03/31/90 -0.92% 12,493
06/30/90 3.79% 14,756 06/30/90 2.97% 12,863
09/30/90 1.48% 14,975 09/30/90 0.94% 12,985
12/31/90 4.98% 15,720 12/31/90 4.92% 13,624
03/31/91 3.07% 16,203 03/31/91 2.12% 13,913
06/30/91 1.90% 16,511 06/30/91 1.78% 14,161
09/30/91 5.48% 17,416 09/30/91 4.57% 14,807
12/31/91 4.45% 18,191 12/31/91 3.95% 15,393
03/31/92 -0.86% 18,034 03/31/92 -1.06% 15,229
06/30/92 4.02% 18,759 06/30/92 3.97% 15,833
09/30/92 2.98% 19,318 09/30/92 3.09% 16,322
12/31/92 0.72% 19,457 12/31/92 0.13% 16,342
03/31/93 2.96% 20,033 03/31/93 4.10% 17,013
06/30/93 1.86% 20,406 06/30/93 2.61% 17,456
09/30/93 0.96% 20,602 09/30/93 1.38% 17,697
12/31/93 0.90% 20,787 12/31/93 0.23% 17,738
03/31/94 -2.32% 20,305 03/31/94 -3.80% 17,064
06/30/94 -0.56% 20,191 06/30/94 -3.94% 16,391
09/30/94 0.87% 20,367 09/30/94 -0.13% 16,370
12/31/94 0.43% 20,454 12/31/94 -0.15% 16,345
03/31/95 5.24% 21,526 03/31/95 4.46% 17,074
06/30/95 5.22% 22,650 06/30/95 5.10% 17,945
09/30/95 2.10% 23,125 09/30/95 1.39% 18,194
12/31/95 3.32% 23,893 12/31/95 3.83% 18,892
03/31/96 -0.44% 23,788 03/31/96 -2.04% 18,506
Past performance is not predictive of future performance.
U.S. Government Securities Fund - Average Annual Total Returns*
1 Year 5 Years 10 Years
6.22% 5.45% 6.35%
* The initial public offering of shares commenced on June 4, 1984.
2. Comparison of the Change in Value of a $10,000 Investment in the Treasury
Total Return Fund and the Merrill Lynch Treasuries (All Maturities) Index.
M. L. TREASURIES (ALL MATURITIES) INDEX: TREASURY TOTAL RETURN FUND:
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
01/26/88 10,000 01/26/88 9,600
03/31/88 1.29% 10,129 03/31/88 -3.14% 9,299
06/30/88 0.89% 10,219 06/30/88 -1.80% 9,131
09/30/88 1.72% 10,394 09/30/88 1.38% 9,257
12/31/88 0.94% 10,492 12/31/88 -0.52% 9,209
03/31/89 1.06% 10,602 03/31/89 4.17% 9,593
06/30/89 8.21% 11,473 06/30/89 5.92% 10,161
09/30/89 0.79% 11,563 09/30/89 -0.69% 10,090
12/31/89 3.71% 11,992 12/31/89 4.46% 10,540
03/31/90 -1.24% 11,843 03/31/90 -4.70% 10,045
06/30/90 3.43% 12,250 06/30/90 3.90% 10,437
09/30/90 0.78% 12,345 09/30/90 -3.61% 10,059
12/31/90 5.55% 13,030 12/31/90 8.50% 10,914
03/31/91 2.03% 13,294 03/31/91 1.19% 11,044
06/30/91 1.39% 13,479 06/30/91 -0.73% 10,964
09/30/91 5.69% 14,245 09/30/91 8.21% 11,864
12/31/91 5.37% 15,010 12/31/91 6.35% 12,618
03/31/92 -1.77% 14,745 03/31/92 -4.61% 12,037
06/30/92 3.92% 15,323 06/30/92 3.06% 12,405
09/30/92 5.04% 16,095 09/30/92 5.20% 13,050
12/31/92 -0.01% 16,092 12/31/92 1.21% 13,207
03/31/93 4.55% 16,824 03/31/93 5.91% 13,988
06/30/93 2.88% 17,309 06/30/93 2.66% 14,360
09/30/93 3.29% 17,879 09/30/93 3.55% 14,870
12/31/93 -0.42% 17,803 12/31/93 -2.13% 14,554
03/31/94 -2.97% 17,274 03/31/94 -4.41% 13,913
06/30/94 -1.14% 17,077 06/30/94 -3.24% 13,463
09/30/94 0.40% 17,146 09/30/94 -0.95% 13,335
12/31/94 0.36% 17,207 12/31/94 1.41% 13,523
03/31/95 4.66% 18,009 03/31/95 1.08% 13,670
06/30/95 6.26% 19,136 06/30/95 1.36% 13,856
09/30/95 1.76% 19,473 09/30/95 1.18% 14,020
12/31/95 4.67% 20,381 12/31/95 1.26% 14,196
03/31/96 -2.32% 19,908 03/31/96 -0.87% 14,073
Past performance is not predictive of future performance.
Treasury Total Return Fund - Average Annual Total Returns
1 Year 5 years Since Inception*
(1.17%) 4.11% 4.26%
*The initial public offering of shares commenced on January 26, 1988.
3. Comparison of the Change in Value of a $10,000 Investment in the Utility
Fund* and the Standard & Poor's Utility Index
STANDARD & POOR'S UTILITY INDEX: UTILITY FUND (CLASS A):
QTLY QTLY
DATE RETURN BALANCE DATE RETURN BALANCE
08/16/89 10,000 08/16/89 9,600
09/30/89 2.43% 10,243 09/30/89 0.73% 9,671
12/31/89 11.42% 11,412 12/31/89 6.72% 10,320
03/31/90 -7.45% 10,562 03/31/90 -1.99% 10,115
06/30/90 0.53% 10,618 06/30/90 0.28% 10,144
09/30/90 -4.50% 10,140 09/30/90 -2.86% 9,854
12/31/90 9.67% 11,120 12/31/90 7.19% 10,562
03/31/91 2.22% 11,367 03/31/91 4.61% 11,049
06/30/91 -4.20% 10,889 06/30/91 0.60% 11,115
09/30/91 7.90% 11,749 09/30/91 9.26% 12,144
12/31/91 8.49% 12,746 12/31/91 6.72% 12,960
03/31/92 -9.34% 11,556 03/31/92 -4.66% 12,356
06/30/92 7.79% 12,457 06/30/92 4.44% 12,905
09/30/92 7.88% 13,438 09/30/92 3.82% 13,398
12/31/92 2.53% 13,777 12/31/92 4.14% 13,953
03/31/93 10.79% 15,264 03/31/93 6.84% 14,906
06/30/93 1.86% 15,548 06/30/93 1.50% 15,130
09/30/93 6.70% 16,589 09/30/93 2.82% 15,556
12/31/93 -5.76% 15,634 12/31/93 -3.11% 15,073
03/31/94 -8.50% 14,305 03/31/94 -3.20% 14,591
06/30/94 -0.00% 14,304 06/30/94 -0.83% 14,469
09/30/94 0.45% 14,369 09/30/94 1.32% 14,660
12/31/94 -0.10% 14,355 12/31/94 0.74% 14,769
03/31/95 6.93% 15,349 03/31/95 2.43% 15,128
06/30/95 7.44% 16,491 06/30/95 5.03% 15,890
09/30/95 11.28% 18,350 09/30/95 6.90% 16,986
12/31/95 11.22% 20,409 12/31/95 9.96% 18,677
03/31/96 -4.78% 19,434 03/31/96 -1.46% 18,404
Past performance is not predictive of future performance.
Utility Fund - Average Annual Total Returns
1 Year 5 Years Since Inception
Class A 16.79% 9.84% 9.64%
Class C 20.78% N/A 6.39%
*The chart above represents performance of Class A shares only, which will
vary from the performance of Class C shares based on the difference in loads
and fees paid by shareholders in the different classes. The initial public
offering of Class A shares commenced on August 15, 1989, and the initial public
offering of Class C shares commenced on August 2, 1993.
4. Comparison of the Change in Value of a $10,000 Investment in the Equity
Fund* and the Standard & Poor's 500 Index
STANDARD & POOR'S 500 INDEX: EQUITY FUND (CLASS C):
QTRLY QTRLY
DATE RETURN BALANCE DATE RETURN BALANCE
06/07/93 10,000 06/07/93 10,000
06/30/93 0.78% 10,078 06/30/93 0.10% 10,010
09/30/93 2.58% 10,338 09/30/93 1.20% 10,130
12/31/93 2.32% 10,578 12/31/93 -1.34% 9,994
03/31/94 -3.79% 10,177 03/31/94 -2.85% 9,709
06/30/94 0.42% 10,220 06/30/94 -4.04% 9,317
09/30/94 4.88% 10,718 09/30/94 5.05% 9,787
12/31/94 -0.02% 10,716 12/31/94 -0.37% 9,751
03/31/95 9.74% 11,760 03/31/95 6.86% 10,419
06/30/95 9.55% 12,883 06/30/95 6.48% 11,095
09/30/95 7.95% 13,907 09/30/95 7.19% 11,893
12/31/95 6.02% 14,744 12/31/95 7.43% 12,776
03/31/96 5.37% 15,535 03/31/96 3.49% 13,222
Past performance is not predictive of future performance.
Equity Fund - Average Annual Total Returns
1 Year Since Inception
Class A 22.79% 10.11%
Class C 26.90% 10.43%
*The chart above represents performance of Class C shares only, which
will vary from the performance of Class A shares based on the differences
in loads and fees paid by shareholders in the different classes. The
initial public offering of Class C shares commenced on June 7, 1993, and
the initial public offering of Class A shares commenced on August 2, 1993.
PART C. OTHER INFORMATION
- ------ -----------------
Item 24. Financial Statements and Exhibits
- ------- ---------------------------------
(a) (i) Financial Statements included in Part A:
Financial Highlights
(ii) Financial Statements included in Part B:
Portfolios of Investments, March 31, 1996
Statements of Assets and Liabilities, March
31, 1996
Statements of Operations for the Year Ended
March 31, 1996
Statements of Changes in Net Assets for the
Periods Ended March 31, 1996 and 1995
Financial Highlights
Notes to Financial Statements, March 31,
1996
(b) Exhibits:
(1)(i) Copy of Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 25, is hereby incorporated by
reference.
(ii) Copy of Amendment No. 1, dated May 24, 1994,
to Registrant's Restated Agreement and
Declaration of Trust, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 29, is hereby incorporated by
reference.
(2)(i) Copy of Registrant's Bylaws, which was filed
as an Exhibit to Registrant's Pre-Effective
Amendment No. 1, is hereby incorporated by
reference.
(ii) Copy of amendments to Registrant's Bylaws
adopted July 17, 1984, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 4, is hereby incorporated by
reference.
(iii) Copy of Amendment to Registrant's Bylaws
adopted April 5, 1989, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 14, is hereby incorporated by
reference.
(3) Voting Trust Agreements - None.
(4) Specimen Share Certificate, which was filed
as an Exhibit to Registrant's Post-Effective
Amendment No. 12, is hereby incorporated by
reference.
(5)(i) Copy of Registrant's Management Agreement
with respect to the U.S. Government
Securities Fund and the Treasury Total
Return Fund, which was filed as an Exhibit
to Registrant's Post-Effective Amendment No.
29, is hereby incorporated by reference.
(ii) Copy of Registrant's Management Agreement
with respect to the Utility Fund, which was
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 29, is hereby
incorporated by reference.
(iii) Copy of Registrant's Management Agreement
with respect to the Equity Fund, which was
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 29, is hereby
incorporated by reference.
(6)(i) Copy of Registrant's Underwriting Agreement
with Midwest Group Financial Services, Inc.,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
27, is hereby incorporated by reference.
(ii) Form of Underwriter's Dealer Agreement,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
29, is hereby incorporated by reference.
(7) Bonus, Profit Sharing, Pension or Similar
Contracts for the benefit of Directors or
Officers - None.
(8) Copy of Custody Agreement with The Fifth
Third Bank is filed herewith.
(9)(i) Copy of Registrant's Accounting and Pricing
Services Agreement with MGF Service Corp.,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
29, is hereby incorporated by reference.
(ii) Copy of Registrant's Transfer, Dividend
Disbursing, Shareholder Service and Plan
Agency Agreement with MGF Service Corp.,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
28, is hereby incorporated by reference.
<PAGE>
(iii) Copy of Administration Agreement between
Midwest Group Financial Services, Inc.
(formerly Midwest Advisory Services, Inc.)
and MGF Service Corp., which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 16, is hereby incorporated by
reference.
(10) Opinion and Consent of Goodwin, Procter &
Hoar, which was filed with Registrant's
Rule 24f-2 Notice for the fiscal year ended
March 31, 1996 is hereby incorporated by
reference.
(11) Consent of Arthur Andersen LLP is filed
herewith.
(12) Financial Statements Omitted from Item 23 -
None.
(13) Copy of Letter of Initial Stockholder, which
was filed as an Exhibit to Registrant's Pre-
Effective Amendment No. 1, is hereby
incorporated by reference.
(14)(i) Copy of Midwest Group Individual Retirement
Account Plan, including Schedule of Fees,
which was filed as an Exhibit to
Registrant's Post-Effective Amendment No.
22, is hereby incorporated by reference.
(ii) Copy of Midwest Group 403(b) Plan, including
Schedule of Fees, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 22, is hereby incorporated by
reference.
(iii) Copy of the Midwest Group Prototype Defined
Contribution Plan, which was filed as an
Exhibit to Registrant's Post-Effective
Amendment No. 19, is hereby incorporated by
reference.
(15)(i) Registrant's Plans of Distribution Pursuant
to Rule 12b-1, which were filed as Exhibits
to Registrant's Post-Effective Amendment No.
27, are hereby incorporated by reference.
(ii) Form of Administration Agreement with
respect to the administration of shareholder
accounts, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 29
is hereby incorporated by reference.
<PAGE>
(16) Computations of each performance quotation
provided in response to Item 22, which were
filed as an Exhibit to Registrant's Post-
Effective Amendment No. 12, are hereby
incorporated by reference.
(17)(i) Financial Data Schedule for U.S.
Government Securities Fund is filed
herewith.
(ii) Financial Data Schedule for Treasury Total
Return Fund is filed herewith.
(iii) Financial Data Schedule for Utility Fund
Class A shares is filed herewith.
(iv) Financial Data Schedule for Utility Fund
Class C shares is filed herewith.
(v) Financial Data Schedule for Equity Fund
Class A shares is filed herewith.
(vi) Financial Data Schedule for Equity Fund
Class C shares is filed herewith.
(18) Amended Rule 18f-3 Plan Adopted with
Respect to the Multiple Class Distribution
System of the Midwest Group of Funds is
filed herewith.
Item 25. Persons Controlled by or Under Common Control with the
Registrant
-------------------------------------------------------
None
Item 26. Number of Holders of Securities (as of June 10, 1996)
- ------- -----------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
U.S. Government Securities Fund 923
Treasury Total Return Fund 1,247
Utility Fund
Class A Shares 2,009
Class C Shares 218
Equity Fund
Class A Shares 477
Class C Shares 135
Item 27. Indemnification
- ------- ---------------
(a) Article VI of the Registrant's Restated Agreement and
Declaration of Trust provides for indemnification of
officers and Trustees as follows:
<PAGE>
Section 6.4 Indemnification of Trustees, Officers, etc.
----------- ------------------------------------------
The Trust shall indemnify each of its Trustees and officers,
including persons who serve at the Trust's request as
directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise (hereinafter referred to as a "Covered Person")
against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines
and penalties, and expenses, including reasonable accountants'
and counsel fees, incurred by any Covered Person in connection
with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being
or having been such a Trustee or officer, director or trustee,
and except that no Covered Person shall be indemnified against
any liability to the Trust or its Shareholders to which such
Covered Person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's
office ("disabling conduct"). Anything herein contained to the
contrary notwithstanding, no Covered Person shall be
indemnified for any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject unless
(1) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the Covered
Person to be indemnified was not liable by reason of disabling
conduct or, (2) in the absence of such a decision, a
reasonable determination is made, based upon a review of the
facts, that the Covered Person was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum
of Trustees who are neither "interested persons" of the
Company as defined in the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
Trustees"), or (b) an independent legal counsel in a written
opinion.
Section 6.5 Advances of Expenses.
----------- --------------------
The Trust shall advance attorneys' fees or other expenses
incurred by a Covered Person in defending a proceeding, upon
the undertaking by or on behalf of the Covered Person to repay
the advance unless it is ultimately determined that such
Covered Person is entitled to indemnification, so long as one
of the following conditions is met: (i) the Covered Person
<PAGE>
shall provide security for his undertaking, (ii) the Trust
shall be insured against losses arising by reason of any
lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an
independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found
entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
----------- -----------------------------------
The right of indemnification provided by this Article VI shall
not be exclusive of or affect any other rights to which any
such Covered Person may be entitled. As used in this Article
VI, "Covered Person" shall include such person's heirs,
executors and administrators, an "interested Covered Person"
is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the
same or similar grounds is then or has been pending or
threatened, and a "disinterested" person is a person against
whom none of such actions, suits or other proceedings or
another action, suit or other proceeding on the same or
similar grounds is then or has been pending or threatened.
Nothing contained in this article shall affect any rights to
indemnification to which personnel of the Trust, other than
Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any
such person.
(b) The Registrant maintains a standard mutual fund and
investment advisory professional and directors and
officers liability policy. The policy provides
coverage to the Registrant, its trustees and officers
and Midwest Group Financial Services, Inc. (the
"Adviser") in its capacity as investment adviser and
principal underwriter, among others. Coverage under
the policy includes losses by reason of any act, error,
omission, misstatement, misleading statement, neglect
or breach of duty. The Registrant may not pay for
insurance which protects the Trustees and officers
against liabilities rising from action involving
willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of their offices.
The Advisory Agreements provide that the Adviser shall not be
liable for any error of judgment or mistake of law or for any
loss suffered by the Registrant in connection with the matters
to which the Agreements relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Adviser in the performance of its duties or from the reckless
disregard by the Adviser of its obligations under the
Agreement. Registrant will advance
<PAGE>
attorneys' fees or other expenses incurred by the Adviser in
defending a proceeding, upon the undertaking by or on behalf
of the Adviser to repay the advance unless it is ultimately
determined that the Adviser is entitled to indemnification.
The Underwriting Agreement with the Adviser provides that the
Adviser, its directors, officers, employees, shareholders and
control persons shall not be liable for any error of judgment
or mistake of law or for any loss suffered by Registrant in
connection with the matters to which the Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of any of such persons in the
performance of the Adviser's duties or from the reckless
disregard by any of such persons of the Adviser's obligations
and duties under the Agreement. Registrant will advance
attorneys' fees or other expenses incurred by any such person
in defending a proceeding, upon the undertaking by or on
behalf of such person to repay the advance if it is ultimately
determined that such person is not entitled to
indemnification.
Item 28. Business and Other Connections of the Investment
Adviser
------------------------------------------------
A. Midwest Group Financial Services, Inc. ("MGFS,
Inc.") is a registered investment adviser
providing investment advisory services to the
Trust. MGFS, Inc. also acts as the investment
adviser to six series of Midwest Group Tax Free
Trust and to five series of Midwest Trust, both of
which are registered investment companies. MGFS,
Inc. provides investment advisory services to
individual and institutional accounts and is a
registered broker-dealer.
B. The following list sets forth the business and other
connections of the directors and officers of MGFS,
Inc. Unless otherwise noted, the address of the
corporations listed below is 312 Walnut Street,
Cincinnati, Ohio 45202.
(1) Robert H. Leshner - Chairman of the Board
and a Director of MGFS, Inc.
(a) President and a Trustee of Midwest
Strategic Trust, Midwest Trust and Midwest
Group Tax Free Trust, registered
investment companies.
(b) Chairman of the Board and a Director of
Leshner Financial, Inc., a financial
services company.
<PAGE>
(c) Chairman of the Board and a Director of
MGF Service Corp., a registered transfer
agent.
(d) President and a Director of Leshner
Financial Services, Inc., a registered
investment adviser and registered
broker-dealer until December 1994.
(2) Michael F. Andrews - President of MGFS,
Inc.
(a) President of ABT Financial Services, Inc.,
340 Royal Palm Way, Palm Beach, Florida
33480, until June 1995.
(3) James A. Markley, Jr. - A Director of
MGFS, Inc.
(a) President and a Director of Leshner
Financial, Inc.
(b) A Director of MGF Service Corp.
(c) A Director of Sycamore National Bank, 3209
West Galbraith Road, Cincinnati, Ohio
45239.
(d) President of MGFS, Inc. until July 1995.
(e) President of MGF Service Corp. until
December 1994.
(f) A Director of Leshner Financial Services,
Inc. until December 1994.
(4) John J. Goetz - Chief Investment Officer
of MGFS, Inc.
(a) Vice President of Leshner Financial, Inc.
(b) Vice President-Investments of Leshner
Financial Services, Inc. until December
1994.
(5) Susan F. Flischel - Vice President-
Investments of MGFS, Inc.
(a) Assistant Vice President-Investments of
Leshner Financial Services, Inc. until
December 1994.
(6) Scott Weston - Assistant Vice President-
Investments of MGFS, Inc.
<PAGE>
(7) Maryellen Peretzky - Vice President,
Assistant Secretary and a Director of
MGFS, Inc.
(a) Vice President and a Director of Leshner
Financial, Inc.
(b) Vice President of MGF Service Corp.
(c) Assistant Secretary of The Tuscarora
Investment Trust.
(d) Vice President and a Director of Leshner
Financial Services, Inc. until December
1994.
(8) Sharon L. Karp - Vice President of MGFS,
Inc.
(a) Vice President of Leshner Financial, Inc.
(9) John F. Splain - Secretary and General
Counsel of MGFS, Inc.
(a) Secretary, General Counsel and a Director
of Leshner Financial, Inc.
(b) Secretary and General Counsel of MGF
Service Corp.
(c) Secretary of Midwest Group Tax Free Trust,
Midwest Trust, Midwest Strategic Trust,
Brundage, Story and Rose Investment Trust,
Williamsburg Investment Trust, Markman
MultiFund Trust, The Tuscarora Investment
Trust, PRAGMA Investment Trust, Maplewood
Investment Trust and The Thermo
Opportunity Fund, Inc., registered
investment companies.
(d) Assistant Secretary of Fremont Mutual
Funds, Inc. and Schwartz Investment Trust,
registered investment companies.
(e) Secretary and General Counsel of Leshner
Financial Services, Inc. until December
1994.
(10) Robert G. Dorsey - Treasurer of MGFS, Inc.
(a) President of MGF Service Corp.
(b) Treasurer and a Director of Leshner
Financial, Inc.
<PAGE>
(c) Vice President of Brundage, Story and
Rose Investment Trust, Markman MultiFund
Trust, PRAGMA Investment Trust,
Maplewood Investment Trust and The
Thermo Opportunity Fund, Inc.
(d) Assistant Vice President of Williamsburg
Investment Trust, Schwartz Investment
Trust, Fremont Mutual Funds, Inc. and
The Tuscarora Investment Trust.
(e) Treasurer of Leshner Financial Services,
Inc. until December 1994.
(11) Michele McClellan Hawkins - Assistant
Vice President of MGFS, Inc.
(12) Elizabeth A. Santen - Assistant
Secretary of MGFS, Inc.
(a) Assistant Secretary of Leshner
Financial, Inc.
(b) Assistant Vice President of MGF Service
Corp.
(c) Assistant Secretary of Midwest Trust,
Midwest Group Tax Free Trust, Midwest
Strategic Trust, The Tuscarora
Investment Trust and Maplewood
Investment Trust.
(d) Assistant Secretary of Leshner Financial
Services, Inc. until December 1994.
Item 29. Principal Underwriters
- ------- ----------------------
(a) Midwest Group Financial Services, Inc. also acts as
underwriter for Midwest Trust, Midwest Group Tax Free
Trust, Brundage, Story and Rose Investment Trust and
Maplewood Investment Trust, a series company.
Position with Position with
(b) Name Underwriter Registrant
---- ----------- -------------
Robert H. Leshner Chairman of President and
the Board Trustee
and Director
Michael F. Andrews President None
James A. Markley, Jr. Director None
John J. Goetz Chief None
Investment
Officer
Sharon L. Karp Vice President None
<PAGE>
Maryellen Peretzky Vice President, None
Assistant
Secretary and
Director
John F. Splain Secretary and Secretary
General Counsel
Robert G. Dorsey Treasurer None
Susan F. Flischel Vice President- None
Investments
Scott Weston Assistant Vice None
President-
Investments
Michele M. Hawkins Assistant Vice None
President
Elizabeth A. Santen Assistant Assistant
Secretary Secretary
The address of all of the above-named persons is 312 Walnut
Street, Cincinnati, Ohio 45202.
(c) None.
Item 30. Location of Accounts and Records
- ------- --------------------------------
Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant.
Item 31. Management Services Not Discussed in Part A or Part B
- ------- -----------------------------------------------------
None.
Item 32. Undertakings
- ------- ------------
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of its latest
annual report to shareholders, upon request and
without charge.
(d) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant pursuant to the provisions of
Massachusetts law and the Agreement and
<PAGE>
Declaration of Trust of the Registrant or the
Bylaws of the Registrant, or otherwise, the
Registrant has been advised that in the opinion of
the Securities and Exchange Commission such
indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant
of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(e) Within five business days after receipt of a
written application by shareholders holding in the
aggregate at least 1% of the shares then
outstanding or shares then having a net asset
value of $25,000, whichever is less, each of whom
shall have been a shareholder for at least six
months prior to the date of application
(hereinafter the "Petitioning Shareholders"),
requesting to communicate with other shareholders
with a view to obtaining signatures to a request
for a meeting for the purpose of voting upon
removal of any Trustee of the Registrant, which
application shall be accompanied by a form of
communication and request which such Petitioning
Shareholders wish to transmit, Registrant will:
(i) provide such Petitioning Shareholders with
access to a list of the names and addresses of all
shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the
approximate number of shareholders and the estimated
costs of mailing such communication, and to undertake
such mailing promptly after tender by such
Petitioning Shareholders to the Registrant of the
material to be mailed and the reasonable expenses of
such mailing.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cincinnati, State of Ohio, on the 31st day of
July, 1996.
MIDWEST STRATEGIC TRUST
By: /s/ John F. Splain
-------------------
JOHN F. SPLAIN
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Robert H. Leshner President & July 31, 1996
- --------------------- Trustee
ROBERT H. LESHNER
/s/ Mark J. Seger Treasurer July 31, 1996
- ---------------------
MARK J. SEGER
*DALE P. BROWN Trustee
*GARY W. HELDMAN Trustee
*H. JEROME LERNER Trustee
*RICHARD A. LIPSEY Trustee
*DONALD J. RAHILLY Trustee
*FRED A. RAPPOPORT Trustee
*OSCAR P. ROBERTSON Trustee
*ROBERT B. SUMEREL Trustee
By: /s/ John F. Splain
-----------------
JOHN F. SPLAIN
Attorney-in-Fact*
July 31, 1996
EXHIBIT INDEX
1. Custody Agreement with The Fifth Third Bank
2. Consent of Public Accountants
3. Financial Data Schedule for U.S. Government Securities Fund
4. Financial Data Schedule for Treasury Total Return Fund
5. Financial Data Schedule for Utility Fund Class A
6. Financial Data Schedule for Utility Fund Class C
7. Financial Data Schedule for Equity Fund Class A
8. Financial Data Schedule for Equity Fund Class C
9. Rule 18f-3 Plan
10. Power of Attorney for Gary W. Heldman
11. Power of Attorney for Oscar P. Robertson
<PAGE>
CUSTODY AGREEMENT
This AGREEMENT, dated as of November 16, 1990, by and between MIDWEST
STRATEGIC TRUST (the "Trust"), a business trust organized under the laws of The
Commonwealth of Massachusetts, acting with respect to the GROWTH FUND, the U.S.
GOVERNMENT SECURITIES FUND, the U.S. TREASURY ALLOCATION FUND and the UTILITY
INCOME FUND (individually, a "Fund" and, collectively, the "Funds"), each of
them a series of the Trust and each of them operated and administered by the
Trust, and THE FIFTH THIRD BANK, a state of Ohio chartered bank (the
"Custodian").
W I T N E S S E T H:
WHEREAS, the Trust desires that the Funds' Securities and cash be held
and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1.1 "Authorized Person" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral Instructions and
Written Instructions on behalf of the Funds and named in Exhibit A hereto or in
such resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "Board of Trustees" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust, as from time to
time amended.
1.3 "Book-Entry System" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "Business Day" shall mean any day recognized as a
settlement day by The New York Stock Exchange, Inc. and any other
day for which the Trust computes the net asset value of Shares of
any Fund.
1.5 "NASD" shall mean The National Association of
Securities Dealers, Inc.
- 2 -
<PAGE>
1.6 "Officer" shall mean the President, any Vice President,
the Secretary, any Assistant Secretary, the Treasurer, or any
Assistant Treasurer of the Trust.
1.7 "Oral Instructions" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have been given by an Authorized Person, (ii)
recorded and kept among the records of the Custodian made in the ordinary course
of business and (iii) orally confirmed by the Custodian. The Trust shall cause
all Oral Instructions to be confirmed by Written Instructions prior to the end
of the next Business Day. If such Written Instructions confirming Oral
Instructions are not received by the Custodian prior to a transaction, it shall
in no way affect the validity of the transaction or the authorization thereof by
the Trust. If Oral Instructions vary from the Written Instructions which purport
to confirm them, the Custodian shall notify the Trust of such variance but such
Oral Instructions will govern unless the Custodian has not yet acted.
1.8 "Fund Custody Account" shall mean any of the accounts in the name
of the Trust, which are provided for in Section 3.2 below.
1.9 "Proper Instructions" shall mean Oral Instructions or
Written Instructions. Proper Instructions may be continuing
Written Instructions when deemed appropriate by both parties.
- 3 -
<PAGE>
1.10 "Securities Depository" shall mean The Depository Trust Company
and (provided that Custodian shall have received a copy of a resolution of the
Board of Trustees, certified by an Officer, specifically approving the use of
such clearing agency as a depository for the Funds) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of the Securities.
1.11 "Securities" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures, notes, bank
certificates of deposit, bankers' acceptances, mortgage-backed securities or
other obligations, and any certificates, receipts, warrants or other instruments
or documents representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests therein, or any
similar property or assets that the Custodian has the facilities to clear and to
service.
1.12 "Shares" shall mean, with respect to a Fund, the units of
beneficial interest issued by the Trust on account of such Fund.
- 4 -
<PAGE>
1.13 "Written Instructions" shall mean (i) written communications
actually received by the Custodian and signed by two Authorized Persons, or (ii)
communications by telex or any other such system from two persons reasonably
believed by the Custodian to be Authorized Persons, or (iii) communications
between electro-mechanical or electronic devices provided that the use of such
devices and the procedures for the use thereof shall have been approved by
resolutions of the Board of Trustees, a copy of which, certified by an Officer,
shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 Appointment. The Trust hereby constitutes and
appoints the Custodian as custodian of all Securities and cash
owned by or in the possession of the Trust at any time during the
period of this Agreement.
2.2 Acceptance. The Custodian hereby accepts appointment
as such custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 Segregation. All Securities and non-cash property held
by the Custodian for the account of a Fund (other than Securities
- 5 -
<PAGE>
maintained in a Securities Depository or Book-Entry System) shall be physically
segregated from other Securities and non-cash property in the possession of the
Custodian (including the Securities and non-cash property of the other Funds)
and shall be identified as subject to this Agreement.
3.2 Fund Custody Accounts. As to each Fund, the Custodian shall open
and maintain in its trust department a custody account in the name of the Trust
coupled with the name of such Fund, subject only to draft or order of the
Custodian, in which the Custodian shall enter and carry all Securities, cash and
other assets of such Fund which are delivered to it.
3.3 Appointment of Agents. (a) In its discretion, the Custodian may
appoint, and at any time remove, any domestic bank or trust company, which has
been approved by the Board of Trustees and is qualified to act as a custodian
under the 1940 Act, as primary sub-custodian to hold Securities and cash of the
Funds and to carry out such other provisions of this Agreement as it may
determine, and may also open and maintain one or more banking accounts with such
a bank or trust company (any such accounts to be in the name of the Custodian
and subject only to its draft or order), provided, however, that the appointment
of any such agent or opening and maintenance of any such accounts shall be at
the Custodian's expense and shall not relieve the Custodian of any of its
obligations or liabilities under this Agreement.
- 6 -
<PAGE>
(b) Upon receipt of Written Instructions to do so, Custodian shall
appoint as a non-primary sub-custodian such domestic bank or trust company as is
named therein, provided that such bank or trust company is qualified to act as a
custodian under the 1940 Act and provided that the appointment of any such agent
or opening and maintenance of any such accounts shall be at the Funds' expense.
The Funds shall reimburse the Custodian for all costs incurred by the Custodian
in connection with any such accounts.
3.4 Delivery of Assets to Custodian. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payments of income, payments or principal and capital
distributions received by the Funds with respect to such Securities, cash or
other assets owned by the Funds at any time during the period of this Agreement,
and (b) all cash received by the Funds for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 Securities Depositories and Book-Entry Systems. The
Custodian may deposit and/or maintain Securities of the Funds in
a Securities Depository or in a Book-Entry System, subject to the
following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Trust
shall deliver to the Custodian a resolution of the
- 7 -
<PAGE>
Board of Trustees, certified by an Officer, authorizing and
instructing the Custodian on an on-going basis to deposit in
such Securities Depository or Book-Entry System all Securities
eligible for deposit therein and to make use of such
Securities Depository or Book-Entry System to the extent
possible and practical in connection with its performance
hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of collateral
consisting of Securities. So long as such Securities
Depository or Book-Entry System shall continue to be employed
for the deposit of Securities of the Funds, the Trust shall
annually re-adopt such resolution and deliver a copy thereof,
certified by an Officer, to the Custodian.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book- Entry System or
Securities Depository which includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for
customers.
(c) The records of the Custodian with respect to Securities of a
Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry, identify such Securities as
belonging to such Fund.
- 8 -
<PAGE>
(d) If Securities purchased by a Fund are to be held in a
Book-Entry System or Securities Depository, the
Custodian shall pay for such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities Depository that such Securities have been
transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of
such Fund. If Securities sold by a Fund are held in a
Book-Entry System or Securities Depository, the
Custodian shall transfer such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities Depository that payment for such Securities
has been transferred to the Depository Account, and
(ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the
account of such Fund.
(e) The Custodian shall provide the Trust with copies of any
report (obtained by the Custodian from a Book-Entry System of
Securities Depository in which Securities of the Funds are
kept) on the internal accounting controls and procedures for
safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
- 9 -
<PAGE>
Trust for any loss or damage to a Fund resulting (i) from the
use of a Book-Entry System or Securities Depository by reason
of any negligence or willful misconduct on the part of
Custodian or any sub-custodian appointed pursuant to Section
3.3 above or any of its or their employees, or (ii) from
failure of Custodian or any such sub-custodian to enforce
effectively such rights as it may have against a Book- Entry
System or Securities Depository. At its election, the Trust
shall be subrogated to the rights of the Custodian with
respect to any claim against a Book-Entry System or Securities
Depository or any other person from any loss or damage to the
Funds arising from the use of such Book-Entry System or
Securities Depository, if and to the extent that the Funds
have not been made whole for any such loss or damage.
3.6 Disbursement of Moneys from Fund Custody Accounts.
Upon receipt of Proper Instructions, the Custodian shall disburse
moneys from a Fund Custody account but only in the following
cases:
(a) For the purchase of Securities for the Fund but only in
accordance with Section 4.1 of this Agreement and only (i) in
the case of Securities (other than options on Securities,
futures contracts and options on futures contracts), against
the delivery to the Custodian (or
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any sub-custodian appointed pursuant to Section 3.3 above) of
such Securities registered as provided in Section 3.9 below or
in proper form for transfer, or if the purchase of such
Securities is effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set
forth in Section 3.5 above; (ii) in the case of options on
Securities, against delivery to the Custodian (or such
sub-custodian) of such receipts as are required by the customs
prevailing among dealers in such options; (iii) in the case of
futures contracts and options on futures contracts, against
delivery to the Custodian (or such sub-custodian) of evidence
of title thereto in favor of the Fund or any nominee referred
to in Section 3.9 below; and (iv) in the case of repurchase or
reverse repurchase agreements entered into between the Trust
and a bank which is a member of the Federal Reserve System or
between the Trust and a primary dealer in U.S. Government
securities, against delivery of the purchased Securities
either in certificate form or through an entry crediting the
Custodian's account at a Book-Entry System or Securities
Depository with such Securities;
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(b) In connection with the conversion, exchange or
surrender, as set forth in Section 3.7(f) below, of
Securities owned by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as
provided in Section 5.1 below;
(e) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: interest; taxes;
administration, investment advisory, accounting,
auditing, transfer agent, custodian, trustee and legal
fees; and other operating expenses of the Fund; in all
cases, whether or not such expenses are to be in whole
or in part capitalized or treated as deferred expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or
other arrangements in connection with transactions by
the Fund;
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(g) For transfer in accordance with the provision of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution
(including the Custodian), which deposit or account has a term
of one year or less; and
(i) For any other proper purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
amount and purpose of such payment, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
3.7 Delivery of Securities from Fund Custody Accounts.
Upon receipt of Proper Instructions, the Custodian shall release
and deliver Securities from a Fund Custody Account but only in
the following cases:
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(a) Upon the sale of Securities for the account of the Fund
but only against receipt of payment therefor in cash,
by certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with the
provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer
into the name of the Fund, the Custodian or any sub-
custodian appointed pursuant to Section 3.3 above, or
of any nominee or nominees of any of the foregoing, or
(ii) for exchange for a different number of
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new Securities are to be
delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan or
merger, consolidation, recapitalization, reorganization
or readjustment of the issuer of such Securities, or
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pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement, including
surrender or receipt of underlying Securities in connection
with the issuance or cancellation of depository receipts;
provided that, in any such case, the new Securities and cash,
if any, are to be delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered into
by the Fund;
(h) In the case of warrants, rights or similar Securities, upon
the exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Trust, but only
against receipt by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Trust;
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(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or
other arrangements in connection with transactions by
the Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon
receipt, in addition to Proper Instructions, of a copy
of a resolution of the Board of Trustees, certified by
an Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
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3.8 Actions Not Requiring Proper Instructions. Unless
otherwise instructed by the Trust, the Custodian shall with
respect to all Securities held for a Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Fund is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect
on a timely basis the amount payable upon all Securities which
may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax
laws or the laws or regulations of any other taxing
authority now or hereafter in effect, and prepare and
submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and
containing such information as is prescribed by the
IRS;
(f) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
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Securities Depository, all rights and similar
securities issued with respect to Securities of the
Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with Securites and assets of the
Fund.
3.9 Registration and Transfer of Securities. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for a Fund may
be registered in the name of such Fund, the Custodian, or any sub-custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Trust shall furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of any of the nominees hereinabove referred
to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of a Fund.
3.10 Records. (a) The Custodian shall maintain, by Fund,
complete and accurate records with respect to Securities, cash or
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other property held for the Funds, including (i) journals or other records of
original entry containing an itemized daily record in detail of all receipts and
deliveries of Securities and all receipts and disbursements of cash; (ii)
ledgers (or other records) reflecting (A) Securities in transfer, (B) Securities
in physical possession, (C) monies and Securities borrowed and monies and
Securities loaned (together with a record of the collateral therefor and
substitutions of such collateral), (D) dividends and interest received, and (E)
dividends receivable and interest accrued; and (iii) canceled checks and bank
records related thereto. The Custodian shall keep such other books and records
of the Funds as the Trust shall reasonably request, or as may be required by the
1940 Act, including, but not limited to, Section 31 of the 1940 Act and Rule
31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
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3.11 Fund Reports by Custodian. The Custodian shall furnish the Trust
with a daily activity statement by Fund and a summary of all transfers to or
from each Fund Custody Account on the day following such transfers. At least
monthly and from time to time, the Custodian shall furnish the Trust with a
detailed statement, by Fund, of the Securities and moneys held for the Funds
under this Agreement.
3.12 Other Reports by Custodian. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any sub-custodian appointed pursuant to Section
3.3 above.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of a Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.14 Information on Corporate Actions. The Custodian shall promptly
transmit to the Trust all written information received by the Custodian from
issuers of Securities being held for the Funds or from agents of such issuers.
The Custodian shall also promptly notify the Trust of corporate actions, limited
to those
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Securities registered in nominee name and to those Securities held at a
Securities Depository or sub-custodian acting as agent for the Custodian, if the
notice of such corporate actions is published by the Financial Daily Card
Service, J. J. Kenny Called Bond Service or Depository Trust Company. With
respect to tender or exchange offers, the Custodian shall promptly transmit to
the Trust all written information received by the Custodian from issuers of the
Securities whose tender or exchange is sought and from the party (or its agents)
making the tender or exchange offer. If the Trust desires to take action with
respect to any tender offer, exchange offer or other similar transaction, the
Trust shall notify the Custodian at least five Business Days prior to the date
on which the Custodian is to take such action. The Trust will provide or cause
to be provided to the Custodian all relevant information for any Security which
has unique put/option provisions at least five Business Days prior to the
beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUNDS
4.1 Purchase of Securities. Promptly upon each purchase of Securities
for a Fund, Written Instructions shall be delivered to the Custodian, specifying
(a) the Fund for which the purchase was made, (b) the name of the issuer or
writer of such Securities, and the title or other description thereof, (c) the
number of
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shares, principal amount (and accrued interest, if any) or other units
purchased, (d) the date of purchase and settlement, (e) the purchase price per
unit, (f) the total amount payable upon such purchase, and (g) the name of the
person to whom such amount is payable. The Custodian shall upon receipt of such
Securities purchased by a Fund pay out of the moneys held for the account of
such Fund the total amount specified in such Written Instructions to the person
named therein. The Custodian shall not be under any obligation to pay out moneys
to cover the cost of a purchase of Securities for a Fund, if in the relevant
Fund Custody Account there is insufficient cash available to the Fund for which
such purchase was made.
4.2 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for the purchase of Securities
for a Fund is made by the Custodian in advance of receipt of the Securities
purchased but in the absence of specified Written Instructions to so pay in
advance, the Custodian shall be liable to the Fund for such Securities to the
same extent as if the Securities had been received by the Custodian.
4.3 Sale of Securities. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the Fund for which the sale was made, (b) the name of the issuer or writer of
such Securities, and the title or other description thereof, (c) the number of
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shares, principal amount (and accrued interest, if any), or other units sold,
(d) the date of sale and settlement, (e) the sale price per unit, (f) the total
amount payable upon such sale, and (g) the person to whom such Securities are to
be delivered. Upon receipt of the total amount payable to the Fund as specified
in such Written Instructions, the Custodian shall deliver such Securities to the
person specified in such Written Instructions. Subject to the foregoing, the
Custodian may accept payment in such form as shall be satisfactory to it, and
may deliver Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
4.4 Delivery of Securities Sold. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Fund for which such Securities
were delivered shall bear the risk that final payment for such Securities may
not be made or that such Securities may be returned or otherwise held or
disposed of by or through the person to whom they were delivered, and the
Custodian shall have no liability for any for the foregoing.
4.5 Payment for Securities Sold, etc. In its sole
discretion and from time to time, the Custodian may credit the
relevant Fund Custody Account, prior to actual receipt of final
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payment thereof, with (i) proceeds from the sale of Securities which it has been
instructed to deliver against payment, (ii) proceeds from the redemption of
Securities or other assets of the Fund, and (iii) income from cash, Securities
or other assets of the Fund. Any such credit shall be conditional upon actual
receipt by Custodian of final payment and may be reversed if final payment is
not actually received in full. The Custodian may, in its sole discretion and
from time to time, permit a Fund to use funds so credited to its Fund Custody
Account in anticipation of actual receipt of final payment. Any such funds shall
be repayable immediately upon demand made by the Custodian at any time prior to
the actual receipt of all final payments in anticipation of which funds were
credited to the Fund Custody Account.
4.6 Advances by Custodian for Settlement. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust to facilitate
the settlement of a Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 Transfer of Funds. From such funds as may be available
for the purpose in the relevant Fund Custody Account, and upon
receipt of Proper Instructions specifying that the funds are
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required to redeem Shares of a Fund, the Custodian shall wire each amount
specified in such Proper Instructions to or through such bank as the Trust may
designate with respect to such amount in such Proper Instructions.
5.2 No Duty Regarding Paying Banks. The Custodian shall not be under
any obligation to effect payment or distribution by any bank designated in
Proper Instructions given pursuant to Section 5.1 above of any amount paid by
the Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD
(or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered
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contract market), or of any similar organization or
organizations, regarding escrow or other arrangements
in connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in connection
with securities options purchased or written by the Fund or in
connection with financial futures contracts (or options
thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities
made by the Fund,
(d) for purposes of compliance by the Fund with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and
firm commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees, certified by an Officer,
setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
Each segregated account established under this Article VI
shall be established and maintained for a single Fund only. All
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Proper Instructions relating to a segregated account shall specify the Fund
involved.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 Standard of Care. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Trust or either Fund for any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim unless
such loss, damage, cost, expense, liability or claim arises from negligence, bad
faith or willful misconduct on its part or on the part of any sub-custodian
appointed pursuant to Section 3.3 above. The Custodian shall be entitled to rely
on and may act upon advice of counsel on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
The Custodian shall promptly notify the Trust of any action taken or omitted by
the Custodian pursuant to advice of counsel. The Custodian shall not be under
any obligation at any time to ascertain whether the Trust or a Fund is in
compliance with the 1940 Act, the regulations thereunder, the provisions of the
Trust's charter documents or by-laws, or its investment objectives and policies
as then in effect.
7.2 Actual Collection Required. The Custodian shall not be
liable for, or considered to be the custodian of, any cash
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belonging to a Fund or any money represented by a check, draft or other
instrument for the payment of money, until the Custodian or its agents actually
receive such cash or collect on such instrument.
7.3 No Responsibility for Title, etc. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 Limitation on Duty to Collect. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for a Fund if such Securities are in
default or payment is not made after due demand or presentation.
7.5 Reliance Upon Documents and Instructions. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and any Written Instructions
actually received by it pursuant to this Agreement.
7.6 Express Duties Only. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
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7.7 Co-operation. The Custodian shall cooperate with and supply
necessary information, by Fund, to the entity or entities appointed by the Trust
to keep the books of account of the Funds and/or compute the value of the assets
of the Funds. The Custodian shall take all such reasonable actions as the Trust
may from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's reports on Form N-1A and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. The Trust shall indemnify and hold harmless the
Custodian and any sub-custodian appointed pursuant to Section 3.3 above, and any
nominee of the Custodian or of such sub-custodian, from and against any loss,
damage, cost, expense (including attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
Securities are
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registered in the name of any such nominee, or (b) from any action or inaction
by the Custodian or such sub-custodian (i) at the request or direction of or in
reliance on the advice of the Trust, or (ii) upon Proper Instructions, or (c)
generally, from the performance of its obligations under this Agreement or any
sub-custody agreement with a sub-custodian appointed pursuant to Section 3.3
above, provided that neither the Custodian nor any such sub-custodian shall be
indemnified and held harmless from and against any such loss, damage, cost,
expense, liability or claim arising from the Custodian's or such sub-custodian's
negligence, bad faith or willful misconduct.
8.2 Indemnity to be Provided. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
8.3 Security. If the Custodian advances cash or Securities to a Fund
for any purpose, either at the Trust's request or as otherwise contemplated in
this Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim
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(except such as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should such Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of such Fund and to dispose of other assets of such Fund
to the extent necessary to obtain reimbursement or indemnification.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate against
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the Funds in favor of any other customer of the Custodian in making computer
time and personnel available to input or process the transactions contemplated
by this Agreement and (ii) shall use its best efforts to ameliorate the effects
of any such failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 Effective Period. This Agreement shall become effective as of its
execution and shall continue in full force and effect for a period of two years
(the "Initial Term") and thereafter until terminated as hereinafter provided.
10.2 Termination. Either party hereto may terminate this Agreement
after the Initial Term by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than sixty (60)
days after the date of the giving of such notice. If a successor custodian shall
have been appointed by the Board of Trustees, the Custodian shall, upon receipt
of a notice of acceptance by the successor custodian, on such specified date of
termination (a) deliver directly to the successor custodian all Securities
(other than Securities held in a Book-Entry System or Securities Depository) and
cash then owned by the Funds and held by the Custodian as custodian, and (b)
transfer any Securities held in a Book-Entry System or Securities Depository to
an account of or for the benefit of the Funds at
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the successor custodian, provided that the Trust shall have paid to the
Custodian all fees, expenses and other amounts to the payment or reimbursement
of which it shall then be entitled. Upon such delivery and transfer, the
Custodian shall be relieved of all obligations under this Agreement. The Trust
may at any time immediately terminate this Agreement in the event of the
appointment of a conservator or receiver for the Custodian by regulatory
authorities or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
10.3 Failure to Appoint Successor Custodian. If a successor custodian
is not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus and undivided
profits as shown on its then most recent published report of not less than $25
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to an
account of or for the Funds at such bank or trust company all Securities of the
Funds held in a Book-Entry System or Securities Depository. Upon such delivery
and transfer, such bank or trust company shall be the successor custodian under
this Agreement and
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the Custodian shall be relieved of all obligations under this
Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from
time to time by the Trust and the Custodian. The fees and other charges in
effect on the date hereof and applicable to the Funds are set forth in Exhibit B
attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust, as from time to time amended. The execution and delivery of this
Agreement have been authorized by the Trustees, and this Agreement has been
signed and delivered by an authorized officer of the Trust, acting as such, and
neither such authorization by the Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind
- 34 -
<PAGE>
only the trust property of the Trust as provided in the above-mentioned
Agreement and Declaration of Trust.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
hereinbelow:
To the Trust:
Midwest Strategic Trust
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Telephone: (513) 629-2000
Facsimile: (513) 629-2041
To Custodian:
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Mutual Fund-Operations
Telephone: (513) 579-5672
Facsimile: (513) 762-8698
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
- 35 -
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio.
14.2 References to Custodian. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for a Fund and such other printed matter as
merely identifies Custodian as custodian for one or more Funds. The Trust shall
submit printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
14.3 No Waiver. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 Amendments. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
- 36 -
<PAGE>
14.5 Counterparts. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 Severability. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 Headings. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on
- 37 -
<PAGE>
its behalf by its representatives thereunto duly authorized, all
as of the day and year first above written.
ATTEST: MIDWEST STRATEGIC TRUST
/s/ John F. Splain By:/s/ Robert H. Leshner
- ---------------------------- ----------------------------
Robert H. Leshner, President
ATTEST: THE FIFTH THIRD BANK
/s/ Amanda Grimes By: /s/ Yvonne M. Smaby
- --------------------------- -----------------------------
Administrative Officer Trust Officer
- 38 -
<PAGE>
EXHIBIT A
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer each Fund Custody Account.
Name Signature
Robert H. Leshner /s/ Robert H. Leshner
---------------------
Robert G. Dorsey /s/ Robert G. Dorsey
----------------------
John F. Splain /s/ John F. Splain
---------------------
Mark J. Seger /s/ Mark J. Seger
----------------------
M. Kathleen Leugers /s/ M. Kathleen Leugers
------------------------
Maryellen Peretzky /s/ Maryellen Peretzky
--------------------------
Gary Goldschmidt /s/ Gary Goldschmidt
-------------------------
Terrie Wiedenheft /s/ Terrie Wiedenheft
------------------------
*John J. Goetz /s/ John J. Goetz
------------------------
*Susan Flischel /s/ Susan Flischel
------------------------
*Scott Weston /s/ Scott Weston
-----------------------
* Authority restricted; does not include: (i) authority to sign checks on
Fund Custody Accounts or make other withdrawals or distributions of
Fund monies or (ii) such other authority as may be withheld or limited
by Written Instructions signed by two Officers of the Trust and
delivered to the Custodian.
- 39 -
<PAGE>
EXHIBIT B
SCHEDULE OF FEES
CUSTODY
Base Fee
Asset Value Fee 0.5 Basis Points
Minimum $1,500.00
Maximum $5,000.00
Transaction Fees
DTC Eligible Trades $10.00
FED Eligible Trades $10.00
Money Market Trades $44.00
(includes purchase & maturity)
Repurchase Agreements $15.00
(includes purchase & maturity)
Third Party Repurchase Agreements $15.00
(includes purchase & maturity)
Physical Trades $22.00
Amortized Security Trades $45.00
Options $35.00
Principal & Interest Payments $5.00
Wires & Check Disbursements $7.00
The cost of supplies, postage, taxes, insurance premiums, extraordinary
services and of non-primary agents will be added to the regular service charges.
These fees and charges wil remain in effect for the Initial Term of the
Agreement.
April 19, 1993
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45263
Attention: Mutual Fund Operations
Gentlemen:
Reference is made to the Custody Agreement (the "Agreement") dated November 16,
1990 and amended December 21, 1990 by and between Midwest Strategic Trust
(the "Trust"), acting with respect to its series, the Growth Fund, the U.S.
Government Securities Fund, the U.S. Treasury Allocation Fund, the Utility
Income Fund and the U.S. Government Long Maturity Fund and The Fifth Third
Bank (the "Custodian").
This letter serves to advise that the Trust has established a new series of
shares, designated the "Leshner Financial Equity Fund" and desires that the
Leshner Financial Equity Fund's Securities and cash be administered by the
Custodian. The Trust therefore requests that the Agreement be amended in
order to add the Leshner Financial Equity Fund as a Fund subject to the terms
and conditions of the Agreement.
This letter shall have the status as an amendment to the Agreement and shall be
effective as of May 3, 1993.
Very truly yours,
MIDWEST STRATEGIC TRUST
/s/ John F. Splain
- ------------------------
John F. Splain, Secretary
Accepted and Agreed to:
THE FIFTH THIRD BANK
/s/ Tracie D. Hoffman
- -------------------------
Trust Officer
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use in this Post-
Effective Amendment No. 31 of out report dated April 26, 1996 and to all
references to our Firm included or made a part of this Post-Effective Amendment.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
July 30, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> MIDWEST STRATEGIC TRUST
<SERIES>
<NUMBER> 3
<NAME> U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 24,803,654
<INVESTMENTS-AT-VALUE> 24,703,770
<RECEIVABLES> 281,791
<ASSETS-OTHER> 274
<OTHER-ITEMS-ASSETS> 2,850
<TOTAL-ASSETS> 24,988,685
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 72,260
<TOTAL-LIABILITIES> 72,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,093,500
<SHARES-COMMON-STOCK> 2,642,220
<SHARES-COMMON-PRIOR> 2,837,768
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,077,191)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (99,884)
<NET-ASSETS> 24,916,425
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,861,030
<OTHER-INCOME> 0
<EXPENSES-NET> 318,520
<NET-INVESTMENT-INCOME> 1,542,510
<REALIZED-GAINS-CURRENT> 1,132,774
<APPREC-INCREASE-CURRENT> (506,128)
<NET-CHANGE-FROM-OPS> 2,169,156
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,542,510
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 343,417
<NUMBER-OF-SHARES-REDEEMED> 667,998
<SHARES-REINVESTED> 129,033
<NET-CHANGE-IN-ASSETS> (1,258,050)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5,209,965)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 199,075
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 327,520
<AVERAGE-NET-ASSETS> 26,485,274
<PER-SHARE-NAV-BEGIN> 9.22
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.43
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> MIDWEST STRATEGIC TRUST
<SERIES>
<NUMBER> 4
<NAME> TREASURY TOTAL RETURN FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 15,523,699
<INVESTMENTS-AT-VALUE> 15,234,526
<RECEIVABLES> 135,681
<ASSETS-OTHER> 49,765
<OTHER-ITEMS-ASSETS> 2,749
<TOTAL-ASSETS> 15,422,721
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78,452
<TOTAL-LIABILITIES> 78,452
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,704,643
<SHARES-COMMON-STOCK> 1,866,811
<SHARES-COMMON-PRIOR> 3,105,434
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,071,201)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (289,173)
<NET-ASSETS> 15,344,269
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,267,152
<OTHER-INCOME> 0
<EXPENSES-NET> 268,957
<NET-INVESTMENT-INCOME> 998,195
<REALIZED-GAINS-CURRENT> 19,746
<APPREC-INCREASE-CURRENT> (305,916)
<NET-CHANGE-FROM-OPS> 712,025
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 998,195
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,654
<NUMBER-OF-SHARES-REDEEMED> 1,406,629
<SHARES-REINVESTED> 103,352
<NET-CHANGE-IN-ASSETS> (10,629,489)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,090,947)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 161,371
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 304,757
<AVERAGE-NET-ASSETS> 21,440,599
<PER-SHARE-NAV-BEGIN> 8.36
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> (.14)
<PER-SHARE-DIVIDEND> .38
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.22
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> MIDWEST STRATEGIC TRUST
<SERIES>
<NUMBER> 51
<NAME> UTILITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 38,016,763
<INVESTMENTS-AT-VALUE> 44,134,410
<RECEIVABLES> 216,236
<ASSETS-OTHER> 210
<OTHER-ITEMS-ASSETS> 5,952
<TOTAL-ASSETS> 44,356,808
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246,561
<TOTAL-LIABILITIES> 246,561
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,023,127
<SHARES-COMMON-STOCK> 3,302,863
<SHARES-COMMON-PRIOR> 3,821,010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,527)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,117,647
<NET-ASSETS> 40,424,488
<DIVIDEND-INCOME> 1,761,248
<INTEREST-INCOME> 521,903
<OTHER-INCOME> 0
<EXPENSES-NET> 576,236
<NET-INVESTMENT-INCOME> 1,706,915
<REALIZED-GAINS-CURRENT> 338,447
<APPREC-INCREASE-CURRENT> 6,353,364
<NET-CHANGE-FROM-OPS> 8,398,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,586,046
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 454,436
<NUMBER-OF-SHARES-REDEEMED> 1,093,005
<SHARES-REINVESTED> 120,422
<NET-CHANGE-IN-ASSETS> 498,473
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (368,974)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 328,982
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 576,236
<AVERAGE-NET-ASSETS> 40,054,802
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> .47
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.24
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> MIDWEST STRATEGIC TRUST
<SERIES>
<NUMBER> 53
<NAME> UTILITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 38,016,763
<INVESTMENTS-AT-VALUE> 44,134,410
<RECEIVABLES> 216,236
<ASSETS-OTHER> 210
<OTHER-ITEMS-ASSETS> 5,952
<TOTAL-ASSETS> 44,356,808
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246,561
<TOTAL-LIABILITIES> 246,561
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,023,127
<SHARES-COMMON-STOCK> 301,479
<SHARES-COMMON-PRIOR> 344,067
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,527)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,117,647
<NET-ASSETS> 3,685,759
<DIVIDEND-INCOME> 1,761,248
<INTEREST-INCOME> 521,903
<OTHER-INCOME> 0
<EXPENSES-NET> 576,236
<NET-INVESTMENT-INCOME> 1,706,915
<REALIZED-GAINS-CURRENT> 338,447
<APPREC-INCREASE-CURRENT> 6,353,364
<NET-CHANGE-FROM-OPS> 8,398,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 120,869
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 120,511
<NUMBER-OF-SHARES-REDEEMED> 172,643
<SHARES-REINVESTED> 9,544
<NET-CHANGE-IN-ASSETS> 498,473
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (368,974)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 328,982
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 576,236
<AVERAGE-NET-ASSETS> 3,722,168
<PER-SHARE-NAV-BEGIN> 10.46
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> 1.78
<PER-SHARE-DIVIDEND> .38
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.23
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> MIDWEST STRATEGIC TRUST
<SERIES>
<NUMBER> 71
<NAME> EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 9,213,385
<INVESTMENTS-AT-VALUE> 10,947,557
<RECEIVABLES> 10,083
<ASSETS-OTHER> 510
<OTHER-ITEMS-ASSETS> 1,185
<TOTAL-ASSETS> 10,959,335
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,212
<TOTAL-LIABILITIES> 21,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,469,795
<SHARES-COMMON-STOCK> 682,935
<SHARES-COMMON-PRIOR> 436,763
<ACCUMULATED-NII-CURRENT> 27
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (265,871)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,734,172
<NET-ASSETS> 8,501,862
<DIVIDEND-INCOME> 112,004
<INTEREST-INCOME> 71,086
<OTHER-INCOME> 0
<EXPENSES-NET> 114,599
<NET-INVESTMENT-INCOME> 68,491
<REALIZED-GAINS-CURRENT> 292,780
<APPREC-INCREASE-CURRENT> 1,472,570
<NET-CHANGE-FROM-OPS> 1,833,841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59,987
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 376,432
<NUMBER-OF-SHARES-REDEEMED> 135,368
<SHARES-REINVESTED> 5,108
<NET-CHANGE-IN-ASSETS> 4,642,954
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (558,651)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173,684
<AVERAGE-NET-ASSETS> 5,695,143
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 2.60
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.45
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000711080
<NAME> MIDWEST STRATEGIC TRUST
<SERIES>
<NUMBER> 73
<NAME> EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 9,213,385
<INVESTMENTS-AT-VALUE> 10,947,557
<RECEIVABLES> 10,083
<ASSETS-OTHER> 510
<OTHER-ITEMS-ASSETS> 1,185
<TOTAL-ASSETS> 10,959,335
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,212
<TOTAL-LIABILITIES> 21,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,469,795
<SHARES-COMMON-STOCK> 195,573
<SHARES-COMMON-PRIOR> 202,399
<ACCUMULATED-NII-CURRENT> 27
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (265,871)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,734,172
<NET-ASSETS> 2,436,261
<DIVIDEND-INCOME> 112,004
<INTEREST-INCOME> 71,086
<OTHER-INCOME> 0
<EXPENSES-NET> 114,599
<NET-INVESTMENT-INCOME> 68,491
<REALIZED-GAINS-CURRENT> 292,780
<APPREC-INCREASE-CURRENT> 1,472,570
<NET-CHANGE-FROM-OPS> 1,833,841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,477
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 42,510
<NUMBER-OF-SHARES-REDEEMED> 50,111
<SHARES-REINVESTED> 775
<NET-CHANGE-IN-ASSETS> 4,642,954
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (558,651)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 173,684
<AVERAGE-NET-ASSETS> 2,168,366
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 2.60
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.46
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Amended May 28, 1996
AMENDED RULE 18f-3 PLAN ADOPTED WITH RESPECT TO THE MULTIPLE
CLASS DISTRIBUTION SYSTEM OF THE MIDWEST GROUP OF FUNDS
- -------------------------------------------------------------------------------
Midwest Trust, Midwest Group Tax Free Trust and Midwest Strategic Trust
(the "Trusts") have each adopted this Plan pursuant to Rule 18f-3 promulgated
under the Investment Company Act of 1940 (the "1940 Act"). The individual series
of the Trusts which are not money market funds are referred to collectively, in
whole or in part, as the context requires, as the "Funds." The individual series
of the Trusts which are money market funds are referred to collectively, in
whole or in part, as the context requires, as the "Money Market Funds." The
Funds and the Money Market Funds are referred to collectively, in whole or in
part, as the context requires, as the "Midwest Funds." Each Trust is an open-end
management investment company registered under the 1940 Act. Midwest Group
Financial Services, Inc. (the "Distributor") provides investment advisory and
management services to each of the Midwest Funds and acts as principal
underwriter for the Midwest Funds.
This Plan permits the Funds to issue and sell up to three classes of
shares and the Money Market Funds to issue and sell up to two classes of shares
for the purpose of establishing a multiple class distribution system (the
"Multiple Class Distribution System"). The Plan further permits the Funds to
assess a contingent deferred sales charge ("CDSC") on certain redemptions of a
class of the Funds' shares and to waive the CDSC in certain instances. These
guidelines set forth the conditions
<PAGE>
pursuant to which the Multiple Class Distribution System will operate and the
duties and responsibilities of the Trustees of each Trust with respect to the
each Trust with respect to the Multiple Class Distribution System.
DESCRIPTION OF THE MULTIPLE CLASS DISTRIBUTION SYSTEM
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE FUNDS. The Multiple Class
Distribution System enables each Fund to offer investors the option of
purchasing shares in one of three manners: (1) subject to a conventional
front-end sales load and a distribution fee not to exceed .35% of average net
assets (Class A shares); (2) subject to either no front-end sales load or a
front-end sales load which is smaller than the sales load on Class A shares, and
in addition subject to a distribution fee and service fee of up to 1% of average
net assets (Class B shares); or (3) subject to a CDSC and a distribution fee and
service fee of up to 1% of average net assets (Class C shares).
The actual creation and issuance of multiple classes of shares will be
made on a Fund-by-Fund basis, and some Funds may not in fact create or issue any
new classes of shares or may create or issue only two of the three classes of
shares described herein.
The three classes will each represent interests in the same portfolio
of investments of such Fund. The three classes will be identical except that (i)
the distribution fees payable by a Fund attributable to each class pursuant to
the distribution plans adopted by the Funds in accordance with Rule 12b-1 under
the 1940 Act will be higher for Class B shares and Class C shares than for
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Class A shares; (ii) each class may bear different Class Expenses (as defined
below); (iii) each class will vote separately as a class with respect to a
Fund's Rule 12b-1 distribution plan; (iv) each class has different exchange
privileges; and (v) each class may bear a different name or designation.
Investors purchasing Class A shares will do so at net asset value plus
a front-end sales load in the traditional manner. The sales load may be subject
to reductions for larger purchases, under a combined purchase privilege, under a
right of accumulation or under a letter of intent. The sales load may be subject
to certain other reductions permitted by Section 22(d) of the 1940 Act and set
forth in the registration statement of each Trust. The public offering price for
the Class A shares will be computed in accordance with Rule 22c-1, Section 22(d)
and other relevant provisions of the 1940 Act and the rules and regulations
thereunder. Each Fund will also pay a distribution fee pursuant to the Fund's
Rule 12b-1 distribution plan at an annual rate of up to .35% of 1% of the
average daily net asset value of the Class A shares.
Investors purchasing Class B shares of a Fund will do so at either net
asset value without a front-end sales load or at net asset value plus a
front-end sales load which is less than the front-end sales load applicable to
Class A shares of such Fund. The sales load on Class B shares, if any, may be
subject to reductions for larger purchases, under a combined purchase privilege
or under a letter of intent. The public offering price for the Class B shares
will be computed in accordance with Rule
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<PAGE>
22c-1, Section 22(d) and other relevant provisions of the 1940 Act and the rules
and regulations thereunder. Each Fund will also pay a distribution fee pursuant
to the Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the
average daily net asset value of the Class B shares.
Investors purchasing Class C shares will do so at net asset value per
share without the imposition of a sales load at the time of purchase. Each Fund
will pay a distribution fee pursuant to the distribution plan at an annual rate
of up to 1% of the average daily net asset value of the Class C shares. In
addition, an investor's proceeds from a redemption of Class C shares made
within a specified period of time of their purchase generally will be subject
to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5%
(but may be higher or lower) on shares redeemed during the first year after
purchase and will be reduced at a rate of 1% (but may be higher or lower) per
year over the CDSC period, so that redemptions of shares held after that period
will not be subject to a CDSC. The CDSC will be made subject to the conditions
set forth below. The Class C alternative is designed to permit the investor to
purchase Class C shares without the assessment of a front-end sales load
and at the same time permit the Distributor to pay financial intermediaries
selling shares of each Fund a commission on the sale of the Class C shares.
Under the Trusts' distribution plans, the Distributor will not be
entitled to any specific percentage of the net asset value of each class of
shares of the Funds or other specific amount.
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<PAGE>
As described above, each Fund will pay a distribution fee pursuant to its
distribution plan at an annual rate of up to .35% of the average daily net
assets of such Fund's Class A shares and up to 1% of the average daily net asset
value of such Fund's Class B shares and Class C shares. Under the Trusts'
distribution plans, payments will be made for expenses incurred in providing
distribution-related services (including, in the case of the Class C shares,
commission expenses as described in more detail below). Each Fund will accrue at
a rate (but not in excess of the applicable maximum percentage rate) which is
reviewed by each Trust's Board of Trustees quarterly. Such rate is intended to
provide for accrual of expenses at a rate that will not exceed the unreimbursed
amounts actually expended for distribution by a Fund. If at any time the amount
accrued by a Fund would exceed the amount of distribution expenses incurred with
respect to such Fund during the fiscal year (plus, in the case of Class C
shares, prior unreimbursed commission-related expenses), then the rate of
accrual will be adjusted accordingly. In no event will the amount paid by the
Funds exceed the unreimbursed expenses previously incurred in providing
distribution-related services.
Proceeds from the distribution fee and, in the case of Class C shares,
the CDSC, will be used to compensate financial intermediaries with a service fee
based upon a percentage of the average daily net asset value of the shares
maintained in the Funds by their customers and to defray the expenses of the
Distributor with respect to providing distribution related
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<PAGE>
services, including commissions paid on the sale of Class C shares.
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE MONEY MARKET FUNDS. The
Multiple Class Distribution System enables each Money Market Fund to offer
investors the option of purchasing shares in one of two manners: (1) subject to
a distribution fee not to exceed .35% of average net assets (Class A, or
"Retail" shares); or (2) subject to no distribution fee with a higher minimum
initial investment requirement (Class B, or "Institutional" shares).
The actual creation and issuance of multiple classes of shares will be
made on a fund-by-fund basis, and some Money Market Funds may not in fact create
or issue any new class of shares described herein.
The two classes will each represent interests in the same portfolio of
investments of such Money Market Fund. The two classes will be identical except
that (i) Retail shares will be subject to distribution fees pursuant to the
distribution plans adopted by the Money Market Funds in accordance with Rule
12b-1 under the 1940 Act, (ii) each class may bear different Class Expenses (as
defined below); (iii) each class has exclusive voting rights with respect to
matters affecting only that class; and (iv) each class may bear a different name
or designation.
Investors purchasing Retail shares will do so at net asset value. Each
Retail share will also pay a distribution fee pursuant to the Money Market
Fund's Rule 12b-1 distribution plan
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<PAGE>
at an annual rate of up to .35% of 1% of the average daily net asset value of
the Retail shares.
Investors purchasing Institutional shares of a Money Market
Fund will do so at net asset value. Each Institutional share will not be
subject to any distribution fees.
Under the Trusts' distribution plans, the Distributor will not be
entitled to any specific percentage of the net asset value of Retail shares or
other specific amount. As described above, eacc class of Retail shares will pay
a distribution fee pursuant to its distribution plan at an annual rate of up to
.35% of the average daily net assets of such Money Market Fund's Retail shares.
Under the Trusts' distribution plans, payments will be made for expenses
incurred in providing distribution-related services. Retail shares will accrue
distribution expenses at a rate (but not in excess of the applicable maximum
percentage rate) which is reviewed by each Trust's Board of Trustees quarterly.
Such rate is intended to provide for accrual of expenses at a rate that will not
exceed the unreimbursed amounts actually expended for distribution by Retail
shares. If at any time the amount accrued by Retail shares would exceed the
amount of distribution expenses incurred with respect to such Retail shares
during the fiscal year, then the rate of accrual will be adjusted accordingly.
In no event will the amount paid by Retail shares exceed the unreimbursed
expenses previously incurred in providing distribution-related services.
Proceeds from the distribution fee will be used to compensate financial
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<PAGE>
intermediaries with a service fee based upon a percentage of the average daily
net asset value of the Retail shares maintained by their customers and to defray
the expenses of the Distributor with respect to providing distribution related
services.
GENERAL. All classes of shares of each Midwest Fund will have identical
voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except for the differences mentioned above.
Under the Multiple Class Distribution System, the Board of Trustees
could determine that any of certain expenses attributable to the shares of a
particular class of shares will be borne by the class to which they were
attributable ("Class Expenses"). Class Expenses are limited to (a) transfer
agency fees identified by the Trusts as being attributable to a class of shares;
(b) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxy statements to
current shareholders of a specific class; (c) SEC and Blue Sky registration fees
incurred by a class of shares; (d) the expenses of administrative personnel and
services as required to support the shareholders of a specific class; (e)
litigation or other legal expenses relating to a specific class of shares; (f)
Trustees' fees or expenses incurred as a result of issues relating to a specific
class of shares; (g) accounting fees and expenses relating to a specific class
of shares; and (h) additional incremental expenses not
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<PAGE>
specifically identified above that are subsequently identified and determined to
be properly allocated to one class of shares and approved by the Board of
Trustees.
Under the Multiple Class Distribution System, certain expenses could be
attributable to more than one Midwest Fund ("Midwest Fund Expenses"). All such
Midwest Fund Expenses would be first allocated among Midwest Funds, based on the
aggregate net assets of such Midwest Funds, and then borne on such basis by each
Midwest Fund and without regard to class. Expenses that were attributable to a
particular Midwest Fund but not to a particular class thereof ("Series
Expenses"), would be borne by each class on the basis of the net assets of such
class in relation to the aggregate net assets of the Midwest Fund. In addition
to distribution fees, Class Expenses may be applied to the shares of a
particular class. Any additional Class Expenses not specifically identified
above in the preceding paragraph which are subsequently identified and
determined to be properly applied to one class of shares shall not be so applied
until approved by the Board of Trustees.
Subject to the approval of the Board of Trustees, certain expenses may
be applied differently if their current application becomes no longer
appropriate. For example, if a Class Expense is no longer attributable to a
specific class, it may be charged to the applicable Midwest Fund or Midwest
Funds, as appropriate. In addition, if application of all or a portion of a
particular expense to a class is determined by the Internal Revenue Service
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<PAGE>
or counsel to the Trusts to result in a preferential dividend for which,
pursuant to Section 562(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), a Midwest Fund would not be entitled to a dividends paid deduction, all
or a portion of the expense may be treated as a Series Expense or a Midwest Fund
Expense. Similarly, if a Midwest Fund Expense becomes attributable to a specific
Midwest Fund it may be treated as a Series Expense.
Because of the varying distribution fees and Class Expenses that may be
borne by each class of shares, the net income of (and dividends payable with
respect to) each class may be different from the net income of (and dividends
payable with respect to) the other classes of shares of a Midwest Fund.
Dividends paid to holders of each class of shares in a Midwest Fund would,
however, be declared and paid on the same days and at the same times and, except
as noted with respect to the varying distribution fees and Class Expenses would
be determined and paid in the same manner. To the extent that a Fund has
undistributed net income, the net asset value per share of each class of such
Fund's shares will vary.
Each Midwest Fund will briefly describe the salient features of the
Multiple Class Distribution System in its prospectus. Each Midwest Fund will
disclose in its prospectus the respective expenses, performance data,
distribution arrangements, services, fees, sales loads, deferred sales loads and
exchange privileges applicable to each class of shares offered through that
prospectus. The shareholder reports of each Midwest Fund will
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<PAGE>
disclose the respective expenses and performance data applicable to each class
of shares. The shareholder reports will contain, in the statement of assets and
liabilities and statement of operations, information related to the Midwest Fund
as a whole generally and not on a per class basis. Each Midwest Fund's per share
data, however, will be prepared on a per class basis with respect to all classes
of shares of such Midwest Fund. The information provided by the Distributor for
publication in any newspaper or similar listing of the Funds' net asset values
and public offering prices will separately present Class A, Class B and Class C
shares.
The Class C alternative is designed to permit the investor to purchase
Class C shares without the assessment of a front-end sales load and at the same
time permit the Distributor to pay financial intermediaries selling shares of
the Funds a commission on the sale of the Class C shares. Proceeds from the
distribution fee and the CDSC will be used to compensate financial
intermediaries with a service fee and to defray the expenses of the Distributor
with respect to providing distribution related services, including commissions
paid on the sale of Class C shares.
The CDSC will not be imposed on redemptions of shares which were
purchased more than a specified period, up to six years (the "CDSC Period")
prior to their redemption. The CDSC will be imposed on the lesser of the
aggregate net asset value of the shares being redeemed either at the time of
purchase or
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<PAGE>
redemption. No CDSC will be imposed on shares acquired through reinvestment of
income dividends or capital gains distributions. In determining whether a CDSC
is applicable, unless the shareholder otherwise specifically directs, it will be
assumed that a redemption is made first of any Class C shares derived from
reinvestment of distributions, second of Class C shares held for a period longer
than the CDSC Period, third of any class B shares in the shareholder's account,
fourth of any Class A shares in the shareholder's account, and fifth of Class C
shares held for a period not longer than the CDSC Period.
In addition, the Funds will waive the CDSC on redemptions following the
death or disability of a shareholder as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986. The Distributor will require satisfactory proof
of death or disability before it determines to waive the CDSC. In cases of death
or disability, the CDSC may be waived where the decedent or disabled person is
either an individual shareholder or owns the shares with his or her spouse as a
joint tenant with rights of survivorship if the redemption is made within one
year of death or initial determination of disability.
Under the Multiple Class Distribution System, Class A shares and Class
B shares of a Midwest Fund (including Retail shares and Institutional shares of
a Money Market Fund) will be exchangeable for (a) Class A shares of the other
Funds, (b) Class B shares of the other Funds, (c) shares of the Money Market
Funds and (d) shares of any Midwest Fund which offers only one class of shares
(provided such Midwest Fund does not impose a CDSC) on the basis
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<PAGE>
of relative net asset value per share, plus an amount equal to the difference,
if any, between the sales charge previously paid on the exchanged shares and
sales charge payable at the time of the exchange on the acquired shares.
Class C shares of a Fund will be exchangeable for (a) Class C shares of
the other Funds, (b) shares of the Money Market Funds and (c) shares of any Fund
which offers only one class of shares and which imposes a CDSC on the basis of
relative net asset value per share. A Fund will "tack" the period for which
original Class C shares were held onto the holding period of the acquired Class
C shares for purposes of determining what, if any, CDSC is applicable in the
event that the acquired Class C shares are redeemed following the exchange. In
the event of redemptions of shares after an exchange, an investor will be
subject to the CDSC of the Fund with the longest CDSC period and/or highest CDSC
schedule which may have been owned by him or her, resulting in the greatest CDSC
payment. The period of time that Class C shares are held in a Money Market Fund
will not count toward the CDSC holding period. The Midwest Funds will comply
with Rule 11a-3 under the 1940 Act as to any exchanges.
LEGAL ANALYSIS
The Board of Trustees of each Trust has determined to rely on Rule
18f-3 under the 1940 Act and to discontinue reliance on an Order previously
received from the Securities and Exchange Commission (the "SEC") exempting the
Midwest Funds from the provisions of Sections 18(f), 18(g) and 18(i) of the 1940
Act to
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<PAGE>
the extent that the issuance and sale of multiple classes of shares representing
interests in the same Midwest Fund might be deemed: (a) to result in a "senior
security" within the meaning of Section 18(g); (b) prohibited by Section 18(f);
and (c) to violate the equal voting provisions of Section 18(i).
The Distributor believes that the Multiple Class Distribution System
as described herein will better enable the Midwest Funds to meet the competitive
demands of today's financial services industry. Under the Multiple Class
Distribution System, an investor will be able to choose the method of purchasing
shares that is most beneficial given the amount of his or her purchase, the
length of time the investor expects to hold his or her shares, and other
relevant circumstances. The System permits the Midwest Funds to facilitate both
the distribution of their securities and provide investors with a broader choice
as to the method of purchasing shares without assuming excessive accounting and
bookkeeping costs or unnecessary investment risks.
The allocation of expenses and voting rights relating to the Rule 12b-1
plans in the manner described is equitable and does not discriminate against any
group of shareholders. In addition, such arrangements should not give rise to
any conflicts of interest because the rights and privileges of each class of
shares are substantially identical.
The Distributor believes that the Multiple Class Distribution System
will not increase the speculative character
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of the shares of the Midwest Funds. The Multiple Class Distribution System does
not involve borrowing, nor will it affect the Midwest Funds' existing assets or
reserves, and does not involve a complex capital structure. Nothing in the
Multiple Class Distribution System suggests that it will facilitate control by
holders of any class of shares.
The Distributor believes that the ability of the Funds to implement
the CDSC is appropriate in the public interest, consistent with the protection
of investors, and consistent with the purposes fairly intended by the policy and
provisions of the 1940 Act. The CDSC arrangement will provide shareholders the
option of having their full payment invested for them at the time of their
purchase of shares of the Funds with no deduction of a sales charge.
CONDITIONS OF OPERATING UNDER THE MULTIPLE CLASS DISTRIBUTION SYSTEM
The operation of the Multiple Class Distribution System shall at all
times be in accordance with Rule 18f-3 under the 1940 Act and all other
applicable laws and regulations, and in addition, shall be subject to the
following conditions:
1. Each class of shares will represent interests in the same portfolio
of investments of a Midwest Fund, and be identical in all material respects,
except as set forth below. The only differences among the various classes of a
Midwest Fund will relate solely to: (a) the impact of the disproportionate Rule
12b-1 distribution plan payments allocated to each of the Class A
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<PAGE>
shares, Class B shares or Class C shares of a Fund; (b) the impact of the Rule
12b-1 distribution plan payments imposed on Retail shares but not Institutional
shares of a Money Market Fund; (c) Class Expenses, which are limited to (i)
transfer agency fees (including the incremental cost of monitoring a CDSC
applicable to a specific class of shares), (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a specific class, (iii) SEC
and Blue Sky registration fees incurred by a class of shares, (iv) the expenses
of administrative personnel and services as required to support the shareholders
of a specific class, (v) litigation or other legal expenses relating to a
specific class of shares, (vi) Trustees' fees or expenses incurred as a result
of issues relating to a specific class of shares, and (vii) accounting fees and
expenses relating to a specific class of shares; (d) the fact that each class
will vote separately as a class with respect to the Rule 12b-1 distribution
plans or any other matter affecting only that class; (e) the different exchange
privileges of the various classes of shares; and (f) the designation of each
class of shares of the Midwest Funds. Any additional incremental expenses not
specifically identified above that are subsequently identified and determined to
be properly allocated to one class of shares shall not be so allocated until
approved by the Board of Trustees.
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<PAGE>
2. The Trustees of each Trust, including a majority of the Trustees who
are not interested persons of the Trust, have approved this Plan as being in the
best interests of each class individually and each Midwest Fund as a whole. In
making this finding, the Trustees evaluated the relationship among the classes,
the allocation of expenses among the classes, potential conflicts of interest
among classes, and the level of services provided to each class and the cost of
those services.
3. Any material changes to this Plan, including but not limited to a
change in the method of determining Class Expenses that will be applied to a
class of shares, will be reviewed and approved by votes of the Board of Trustees
of each Trust, including a majority of the Trustees who are not interested
persons of the Trust.
4. On an ongoing basis, the Trustees of each of the Trusts, pursuant to
their fiduciary responsibilities under the 1940 Act and otherwise, will monitor
each Midwest Fund for the existence of any material conflicts between the
interests of the classes of shares. The Trustees, including a majority of the
Trustees who are not interested persons of the Trust, shall take such action as
is reasonably necessary to eliminate any such conflicts that may develop. The
Distributor will be responsible for reporting any potential or existing
conflicts to the Trustees. If a conflict arises, the Distributor at its own cost
will remedy such conflict up to and including establishing a new registered
management investment company.
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5. The Trustees of each Trust will receive quarterly and annual
Statements complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be
amended from time to time. In the Statements, only distribution expenditures
properly attributable to the sale of a class of shares will be used to support
the Rule 12b-1 fee charged to shareholders of such class of shares. Expenditures
not related to the sale of a particular class will not be presented to the
Trustees to justify any fee attributable to that class. The Statements,
including the allocations upon which they are based, will be subject to the
review and approval of the independent Trustees in the exercise of their
fiduciary duties.
6. Dividends paid by a Midwest Fund with respect to each class of
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day, and will be in the same amount,
except that distribution fee payments and Class Expenses relating to each
respective class of shares will be borne exclusively by that class.
7. Applicants have established the manner in which the net asset value
of the multiple classes of shares will be determined and the manner in which
dividends and distributions will be paid. Attached hereto as Exhibit A is a
procedures memorandum and worksheets with respect to the methodology and
procedures for calculating the net asset value and dividends and distributions
of the various classes and the proper allocation of income and expenses among
the classes.
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8. The Distributor represents that it has in place, and will continue
to maintain, adequate facilities in place to ensure implementation of the
methodology and procedures for calculating the net asset value and dividends and
distributions among the various classes of shares.
9. If a Midwest Fund offers separate classes of shares through separate
prospectuses, each such prospectus will disclose (i) that the Midwest Fund
issues other classes, (ii) that those other classes may have different sales
charges and other expenses, which may affect performance, (iii) a telephone
number investors may call to obtain more information concerning the other
classes available to them through their sales representative, and (iv) that
investors may obtain information concerning those classes from their sales
representative or the Distributor.
10. The Distributor has adopted compliance standards as to when Class
A, Class B and Class C shares may appropriately be sold to particular investors.
The Distributor will require all persons selling shares of the Midwest Funds to
agree to conform to such standards.
11. Each Midwest Fund will briefly describe the salient features of the
Multiple Class Distribution System in its prospectus. Each Midwest Fund will
disclose in its prospectus the respective expenses, performance data,
distribution arrangements, services, fees, sales loads, deferred sales loads and
exchange privileges applicable to each class of shares offered through that
prospectus. Each Midwest Fund will disclose
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the respective expenses and performance data applicable to each class of shares
in every shareholder report. The shareholder reports will contain, in the
statement of assets and liabilities and statement of operations, information
related to the Midwest Fund as a whole generally and not on a per class basis.
Each Midwest Fund's per share data, however, will be prepared on a per class
basis with respect to all classes of shares of such Midwest Fund. The
information provided by the Trusts for publication in any newspaper or similar
listing of the Funds' net asset values and public offering prices will
separately present Class A, Class B and Class C shares.
12. The Trusts will comply with the provisions of Rule 6c-10 under the
1940 Act, IC-20916 (February 23, 1995), as such rule is currently adopted and as
it may be amended.
<PAGE>
EXHIBIT A
MIDWEST TRUST
MIDWEST STRATEGIC TRUST
MIDWEST GROUP TAX FREE TRUST
MULTIPLE-CLASS FUNDS
METHODOLOGY, PROCEDURES
AND
INTERNAL ACCOUNTING CONTROLS
<PAGE>
INTRODUCTION
Midwest Trust, Midwest Group Tax Free Trust and Midwest Strategic Trust
(the "Trusts") are Massachusetts business trusts registered under the Investment
Company Act of 1940 as open-end management investment companies. Midwest Group
Financial Services, Inc. (the "Distributor") acts as the investment manager to
each Midwest Fund and serves as each Midwest Fund's principal underwriter. The
Distributor is a subsidiary of Leshner Financial, Inc. The Trusts presently
offer the following series of shares (collectively, the "Funds") representing
interests in separate investment portfolios:
Midwest Strategic Trust Midwest Group Tax Free Trust
- ----------------------- --------------------------------
U.S. Government Securities Fund Tax-Free Intermediate Term Fund
Treasury Total Return Fund Ohio Insured Tax-Free Fund
*Utility Fund
*Equity Fund
Midwest Trust
-------------
Intermediate Term Government Income Fund
*Global Bond Fund
Adjustable Rate U.S. Government Securities Fund
* Periodic (non-daily) dividend Funds
Each Fund may offer multiple classes of shares as more fully described
in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System would
enable each Fund to offer investors the option of purchasing shares in one of
three manners: (1) subject to a conventional front-end sales load and a
distribution fee not to exceed .35% of average net assets (Class A shares); (2)
subject to either no front-end sales load or to a front-end sales load which is
smaller than the sales load on Class A shares, and also subject to a
distribution fee and service fee of up to 1% of average net assets (Class B
shares); or (3) subject to a contingent deferred sales charge and a distribution
fee and service fee of up to 1% of average net assets (Class C shares). Each of
the Funds which invests primarily in domestic debt securities intends that
substantially all net investment income will be declared as a dividend daily and
paid monthly. Each of the Funds designated by an asterisk in the above chart
declares and pays net investment income at the end of each calendar quarter
(such Funds are referred to herein as "periodic dividend Funds"). Future series
of the Trusts may declare dividends daily or periodically. The Funds and any
future series of the Trusts will declare and pay substantially all net realized
gains, if any, at least annually.
Midwest Group Tax Free Trust presently offers the following series of
shares (collectively, the "Money Market Funds") representing interests in
separate investment portfolios.
Midwest Group Tax Free Trust
----------------------------
Royal Palm Florida Tax-Free Money Fund
Michigan Tax-Free Money Fund
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<PAGE>
Each Money Market Fund may offer two classes of shares as more fully
described in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System
would enable each Money Market Fund to offer investors the option of purchasing
shares in one of two manners: (1) subject to a distribution fee not to exceed
.35% of average net assets (Retail shares); or (2) subject to no distribution
fee with a higher minimum initial investment requirement (Institutional shares).
Each of the Money Market Funds intends that substantially all net investment
income will be declared as a dividend daily and paid monthly.
Pursuant to an Accounting Services Agreement, MGF Service Corp. ("MGF")
maintains the Midwest Funds' accounting records and performs the daily
calculations of each Midwest Fund's net asset value. Thus the procedures and
internal accounting controls for the Midwest Funds include the participation of
MGF.
The internal accounting control environment at MGF provides for minimal
risk of error. This has been accomplished through the use of competent and
well-trained employees, adequate facilities and established internal accounting
control procedures.
Additional procedures and internal accounting controls have been
designed for the multiple class funds. These procedures and internal accounting
controls have been reviewed by management of the Trusts and MGF to ensure that
the risks associated with multiple- class funds are adequately addressed.
The specific internal accounting control objectives and the related
methodology, procedures and internal accounting controls to achieve these stated
objectives are outlined below.
METHODOLOGY, PROCEDURES AND INTERNAL
ACCOUNTING CONTROLS FOR MULTIPLE-CLASS FUNDS
The three internal accounting control objectives to be achieved are:
(1) The daily net asset value for all classes of shares of
each Midwest Fund is accurately calculated.
(2) Recorded expenses of a Midwest Fund are properly allocated
between each class of shares.
(3) Dividend distributions are accurately calculated for each
class of shares.
1. Control Objective
The daily net asset value for all classes of shares of each Midwest
Fund is accurately calculated.
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Methodology, Procedures and Internal Accounting Controls
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a. Securities of the Funds will be valued daily at their current
market value by a reputable pricing source. Security positions
will be reconciled from the Trusts' records and to custody
records and reviewed for completeness and accuracy.
b. Securities of the Money Market Funds will be valued daily on
an amortized cost basis in accordance with written procedures
adopted pursuant to Rule 2a-7 of the 1940 Act.
c. Prepaid and intangible assets will be amortized over their
estimated useful lives. These assets will be reviewed monthly
to ensure a proper presentation and amortization during the
period.
d. Investment income, realized and unrealized gains or losses
will be calculated daily from MGF's portfolio system and
reconciled to the general ledger. Yields and fluctuations in
security prices will be monitored on a daily basis by MGF
personnel. Interest and dividend receivable amounts will be
reconciled to holdings reports.
e. An estimate of all expenses for each Midwest Fund will be
accrued daily. Daily expense accruals will be reviewed and
revised, as required, to reflect actual payments made to
vendors.
f. Capital accounts for each class of shares will be updated
based on daily share activity and reconciled to transfer
agent reported outstanding shares.
g. All balance sheet asset, liability and capital accounts
will be reconciled to subsidiary records for completeness
and accuracy.
h. For each Midwest Fund, a pricing worksheet (see attached
example) will be prepared daily which calculates the net
asset value of settled shares by class (for the Money
Market Funds and the other daily dividend funds) or net
asset value of outstanding shares (for periodic dividend
funds) and the percentage of net asset value of such class
to the total of all classes of shares. Investment income
and joint expenses will be allocated by class of shares
according to such percentages. Realized and unrealized
gains will be allocated by class of shares according to
such percentages.
i. Prior day net assets by class will be rolled forward to
current day net assets by class of shares by adjusting for
current day income, expense and distribution activity.
(There may or may not be distribution activity in the
periodic dividend funds.) Net assets by class of shares
- 3 -
<PAGE>
will then be divided by the number of outstanding shares for
each class to obtain the net asset value per share. Net asset
values will be reviewed and approved by supervisors.
j. Net asset values per share of the different classes of shares
for daily dividend funds should be identical except with
respect to possible differences attributable to rounding.
Differences, if any, will be investigated by the accounting
supervisor.
k. Net asset values per share of the different classes of shares
for the periodic dividend funds may be different as a result
of accumulated income between distribution dates and the
effect of class specific expenses. Other differences, if any,
will be investigated by the accounting supervisor.
2. Control Objective
Recorded expenses of a Midwest Fund are properly allocated between each
class of shares.
Methodology, Procedures and Internal Accounting Controls
---------------------------------------------------------
a. Expenses will be classified as being either joint or class
specific on the pricing worksheet.
b. Certain expenses will be attributable to more than one
Midwest Fund. Such expenses will be first allocated among
the Midwest Funds, based on the aggregate net assets of
such Midwest Funds, and then borne on such basis by each
Midwest Fund and without regard to class. These expenses
could include, for example, Trustees' fees and expenses,
unallocated audit and legal fees, insurance premiums,
expenses relating to shareholder reports and printing
expenses. Expenses that are attributable to a particular
Midwest Fund but not to a particular class thereof will be
borne by each class on the basis of the net assets of such
class in relation to the aggregate net assets of the
Midwest Fund. These expenses could include, for example,
advisory fees and custodian fees, and fees related to the
preparation of separate documents for current shareholders
of a particular Midwest Fund.
c. Class specific expenses are those identifiable with each
individual class of shares. These expenses include 12b-1
distribution fees; transfer agent fees as identified by
MGF Service Corp. as being attributable to a specific
class; printing and postage expenses related to preparing
and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a
particular class; SEC and Blue Sky registration fees; the
expenses of administrative personnel and services required
- 4 -
<PAGE>
to support the shareholders of a specific class; litigation or
other legal expenses relating solely to one class of shares;
Trustees' fees incurred as a result of issues relating to one
class of shares; and accounting fees and expenses relating to
a specific class of shares.
d. Joint expenses will be allocated daily to each class of shares
based on the percentage of the net asset value of shares of
such class to the total of the net asset value of shares of
all classes of shares. Class specific expenses will be charged
to the specific class of shares. Both joint expenses and class
specific expenses are compared against expense projections.
e. The total of joint and class specific expense limits will
be reviewed to ensure that voluntary or contractual
expense limits are not exceeded. Amounts will be adjusted
to ensure that any limits are not exceeded. Expense
waivers and reimbursements will be calculated and
allocated to each class of shares based upon the pro rata
percentage of the net assets of a Midwest Fund as of the
end of the prior day, adjusted for the previous day's
share activity.
f. Each Fund and class will accrue distribution expenses at a
rate (but not in excess of the applicable maximum
percentage rate) which will be reviewed by the Board of
Trustees on a quarterly basis. Such distribution expenses
will be calculated at an annual rate not to exceed .25%
(except that such amount is .35% for the series of Midwest
Trust) of the average daily net assets of a Fund's Class A
shares (including Retail shares of a Money Market Fund)
and not to exceed 1% of the average daily net assets of a
Fund's Class B shares and Class C shares. Under the
distribution plans, payments will be made only for
expenses incurred in providing distribution related
services. Unreimbursed distribution expenses of the
Distributor will be determined daily and the Distributor
shall not be entitled to reimbursement for any amount with
respect to any day on which there exist no unreimbursed
distribution expenses.
g. Expense accruals for both joint and class specific expenses
are reviewed each month. Based upon these reviews, adjustments
to expense accruals or expense projections are made as needed.
h. Expense ratios and yields for each class of shares will be
reviewed daily to ensure that differences in yield relate
solely to acceptable expense differentials.
i. Any change to the classification of expenses as joint or
class specific is reviewed and approved by the Board of
Trustees.
- 5 -
<PAGE>
j. MGF will perform detailed expense analyses to ensure that
expenses are properly charged to each Midwest Fund and to each
class of shares. Any expense adjustments required as a result
of this process will be made.
3. Control Objective
Dividend distributions are accurately calculated for each class of
shares.
Methodology, Procedures and Internal Accounting Controls
---------------------------------------------------------
a. The Money Market Funds and the other daily dividend Funds
declare substantially all net investment income daily.
b. The periodic dividend Funds declare substantially all net
investment income periodically.
c. Investment income, including amortization of discount and
premium, where applicable, is recorded by each Midwest Fund
and is allocated to each class of shares based upon its pro
rata percentage of the net assets of the Midwest Fund as of
the end of the prior day, adjusted for the previous day's
share activity.
d. For Money Market Funds and the other daily dividend Funds,
distributable income is calculated for each class of shares on
the pricing worksheet from which daily dividends and
distributions are calculated. The dividend rates are
calculated on a settlement date basis for class shares
outstanding.
e. Each non-daily dividend Fund will determine the amount of
accumulated income available for all classes after
deduction of allocated expenses but before consideration
of any class specific expenses. This amount will be
divided by total outstanding shares for all classes
combined to arrive at a gross dividend rate for all
shares. From this gross rate, a class specific amount per
share for each class (representing the unique and
incrementally higher, if any, expenses accrued during the
period to that class divided by the shares outstanding for
that class) is subtracted. The result is the actual per
share rate available for each class in determining amounts
to distribute.
f. Realized capital gains, if any, are allocated daily to each
class based upon its relative percentage of the total net
assets of the Midwest Fund as of the end of the prior day,
adjusted for the previous day's share activity.
g. Capital gains are distributed at least once every twelve
months with respect to each class of shares.
- 6 -
<PAGE>
h. The capital gains distribution rate will be determined on the
ex-date by dividing the total realized gains of the Midwest
Fund to be declared as a distribution by the total outstanding
shares of the Midwest Fund as of the record date.
i. Capital gains dividends per share should be identical for
each class of shares within a Midwest Fund. Differences,
if any, will be investigated and resolved.
j. Distributions are reviewed annually by MGF at fiscal year end
and as required for excise tax purposes during the fiscal year
to ensure compliance with IRS regulations and accuracy of
calculations.
There are several pervasive procedures and internal accounting controls which
impact all three of the previously mentioned objectives.
a. MGF's supervisory personnel will be involved on a daily basis
to ensure that the methodology and procedures for calculating
the net asset value and dividend distribution for each class
of shares is followed and a proper allocation of expenses
among each class of shares is performed.
b. MGF fund accountants will receive overall supervision.
Their work with regard to multiple class calculations will
be reviewed and approved by supervisors.
c. MGF's pricing worksheets will be clerically checked and
verified against corresponding computer system generated
reports.
- 7 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
<TABLE>
<S> <C> <C> <C> <C>
Total
(T) (A) (B) (C)
1 Prior day NAV per share (unrounded)
Allocation Percentages
Complete for all Funds:
2 Shares O/S - prior day
3 Prior day shares activity
4 Adjusted shares O/S [2 + 3]
5 Adjusted net assets [4 x 1]
6 % Assets by class
For daily dividend funds complete Rows 7 - 11
For periodic (non daily) dividend
funds insert same # from Rows 2 - 6
7 Settled shares prior day
8 Prior day settled shares activity
9 Adjusted settled shares O/S [7 & 8]
10 Adjusted settled assets [9 x 1]
11 % Assets by class
Income and Expenses
12 Daily income *
Expenses:
13 Management Fee*
14 12-1 Fee
15 Other Joint Expenses*
16 Direct Class Expenses
17 Daily expenses [13+14+15+16]
18 Daily Net Income [12 - 17]
19 Dividend Rate (Daily Dividend Funds Only)
[18/9]
Capital
20 Income distribution
21 Undistributed Net Income [18 - 20]
22 Capital share activity
23 Realized Gains/Losses:
24 Short-Term**
25 Long-Term**
26 Capital gain distribution
27 Unrealized appreciation/depreciation**
28 Daily net asset change
[21 + 22 + 24 + 25 + 26 + 27]
</TABLE>
- 8 -
<PAGE>
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
<TABLE>
<C> <C> <C> <C> <C>
Total
(T) (A) (B) (C)
NAV Proof
29 Prior day net assets
30 Current day net assets [28 + 29]
31 NAV per share [30 / 4]
32 Sales Load as a percent of offering price
33 Offering Price [31 / (100% - 32)]
* - Allocated based on Line 11 percentages.
** - Allocated based on Line 6 percentages.
</TABLE>
- 9 -
<PAGE>
MULTIPLE CLASS PRICING
FINANCIAL STATEMENT DISCLOSURE
Statement of Assets and Liabilities
- -----------------------------------
- Assets and liabilities will be disclosed in accordance
with standard reporting format.
- The following will be disclosed for each class:
Net Assets:
Class A Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $____ per share based
on ____ shares outstanding.
Class B Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $____ per share based
on ____ shares outstanding.
Class C Shares
--------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Unrealized appreciation (depreciation) on
investments - net
Net Assets - equivalent to $____ per share based
on ____ shares outstanding.
- 10 -
<PAGE>
Retail Shares and Institutional Shares
--------------------------------------
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Net Assets - equivalent to $1.00 per share based on
____ shares outstanding.
Statement of Operations
- ------------------------
- Standard reporting format, except that class specific expenses
will be disclosed for each class.
Statement of Changes in Net Assets
- -----------------------------------
- Show components by each class of shares and in total as
follows:
Current Year
- --------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional
Prior Year
- -------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional
Selected Share Data and Ratios
- ------------------------------
- Show components by each class as follows:
Current Year
- -------------------------------------------------------------------------------
Class A Class B Class C Retail Institutional
Prior Years
- -------------------------------------------------------------------------------
Class A Class B Class C Retail Institutional
Notes to Financial Statements
- -----------------------------
- Note on share transactions will include information on
each class of shares for two years
- Notes will include additional disclosure regarding
allocation of expenses between classes.
- Notes will describe the distribution arrangements,
incorporating disclosure on any classes' 12b-1 fee
arrangements.
- 11 -
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, MIDWEST STRATEGIC TRUST, a business trust organized under the
laws of the Commonwealth of Massachusetts (hereinafter referred to as the
"Trust"), has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
as amended, a registration statement with respect to the issuance and sale of
the shares of the Trust; and
WHEREAS, the undersigned is a Trustee of the Trust, as
indicated beside his name;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JOHN F.
SPLAIN his attorney for him and in his name, place and stead, to execute and
file any amended registration statement or statements and amended prospectus or
prospectuses or amendments or supplements to any of the foregoing, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully to all intents and purposes as he might or could do
if personally present at the doing thereof, hereby ratifying and confirming all
that said attorney may or shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 29
day of December, 1995.
/s/ Gary W. Heldman
------------------------
GARY W. HELDMAN, Trustee
STATE OF OHIO )
) ss:
COUNTY OF HAMILTON )
On the 29 day of December, 1995, personally appeared before me, GARY W.
HELDMAN, known to me to be the person described in and who executed the
foregoing instrument, and who acknowledged to me that he executed and delivered
the same for the purposes therein expressed.
WITNESS my hand and official seal this 29 day of December, 1995.
/s/ Everett Levine
-------------------
Notary Public
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, MIDWEST STRATEGIC TRUST, a business trust organized under the
laws of the Commonwealth of Massachusetts (hereinafter referred to as the
"Trust"), has filed with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
as amended, a registration statement with respect to the issuance and sale of
the shares of the Trust; and
WHEREAS, the undersigned is a Trustee of the Trust, as
indicated beside his name;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JOHN F.
SPLAIN his attorney for him and in his name, place and stead, to execute and
file any amended registration statement or statements and amended prospectus or
prospectuses or amendments or supplements to any of the foregoing, hereby giving
and granting to said attorney full power and authority to do and perform all and
every act and thing whatsoever requisite and necessary to be done in and about
the premises as fully to all intents and purposes as he might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorney may or shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28
day of December, 1995.
/s/ Oscar Robertson
-------------------
OSCAR P. ROBERTSON, Trustee
STATE OF OHIO )
) ss:
COUNTY OF HAMILTON )
On the 28 day of December, 1995, personally appeared before me, OSCAR
P. ROBERTSON, known to me to be the person described in and who executed the
foregoing instrument, and who acknowledged to me that he executed and delivered
the same for the purposes therein expressed.
WITNESS my hand and official seal this 28 day of December, 1995.
/s/ Elizabeth A. Santen
------------------------
Notary Public
