<PAGE>
As filed with the Securities 1933 Act File No. 2-87153
and Exchange Commission 1940 Act File No. 811-3880
on July 28, 1998.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [_]
Pre Effective Amendment No. [_]
Post Effective Amendment No. 18 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 18 [X]
WAYNE HUMMER INVESTMENT TRUST
(Exact name of registrant as specified in charter)
300 South Wacker Drive (312) 431-1700
Chicago, Illinois 60606 (Registrant's Telephone Number
(Address of Principal Executive including Area Code)
Offices, Zip Code)
Robert J. Moran
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Suite 2500
Chicago, Illinois 60601
(Name and address of agent for service)
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to paragraph (b)
[X] on July 31, 1998 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
- --------------------------------------------------------------------------------
<PAGE>
FORM N-1A
CROSS REFERENCE SHEET
Form N-1A Item Number
---------------------
PART A Location in Prospectus
------ ----------------------
1 Cover Page Cover Page
2 Synopsis Summary of Expense
Information
3 Condensed Financial Financial Highlights
Information for the Growth
Fund; Financial Highlights
for the Income
Fund; Performance Information
4 General Description Introduction; Investment
of Registrant Objectives, Policies and
Restrictions of the
Funds
5 Management of the Trust Cover Page; Investment
Objectives, Policies
and Restrictions of the
Funds; Management of
the Trust
5A Management's Discussion Information required by Item 5A
of Fund Performance is included in the
Registrant's Annual Report
of the Growth Fund and the
Income Fund, each for the year
ended March 31, 1996.
As required by said Item 5A,
the Registrant undertakes
under "Financial Highlights"
in the Prospectus to provide
free of charge a copy of said
Annual Reports to persons
requesting the same.
6 Capital Stock and Dividends and Capital Gains
Other Securities Distributions; Taxes;
Description of Shares
7 Purchase of Securities Purchase of Shares;
Being Offered Determination of Net
Asset Value
8 Redemption or Repurchase Redemption of Shares
i
<PAGE>
9 Pending Legal Not Applicable
Proceedings
Location in Statement
PART B of Additional Information
------ -------------------------
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Background
History
13 Investment Objectives Investment Objectives,
and Policies Policies and Restrictions
14 Management of the Trust Management of the Trust
15 Control Persons and Management of the Trust
Principal Holders of
Securities
16 Investment Advisory Investment Advisory and
and Other Services Other Services; Independent
Auditors; Custodian and
Transfer and Dividend
Paying Agent
17 Brokerage Allocation Brokerage Allocation
18 Capital Stock and Other Shareholder Voting
Securities Rights; Shareholder
Liability
19 Purchase, Redemption and Purchase, Redemption and
Pricing of Securities Pricing of Shares
Being Offered
20 Tax Status Taxes
21 Underwriters Investment Advisory and
Other Services
22 Calculation of Performance Information
Performance Data
23 Financial Financial Statements and
Statements Report of Independent
Auditors
ii
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN
THE STATEMENT OF ADDITIONAL INFORMATION IN CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESEN-
TATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, THE IN-
VESTMENT ADVISER, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
---------------
DISTRIBUTOR AND SHAREHOLDER SERVICE AGENT:
Wayne Hummer Investments L.L.C.
300 South Wacker Drive
Chicago, Illinois 60606
INVESTMENT ADVISER AND PORTFOLIO ACCOUNTING AGENT:
Wayne Hummer Management Company
300 South Wacker Drive
Chicago, Illinois 60606
AUDITORS:
Ernst & Young LLP
233 South Wacker Drive
Chicago, Illinois 60606
COUNSEL:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
CUSTODIAN AND TRANSFER AND DIVIDEND PAYING AGENT:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
---------------
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Summary of Expense Information.............................................. 2
Financial Highlights for the Growth Fund.................................... 2
Financial Highlights for the Income Fund.................................... 3
Introduction................................................................ 4
Investment Objectives, Policies and Restrictions of the Funds............... 4
Purchase of Shares.......................................................... 9
Redemption of Shares........................................................ 11
Transactions through Broker-Dealers and Agents other than Wayne Hummer...... 11
Management of the Trust..................................................... 11
Dividends and Capital Gains Distributions................................... 12
Taxes....................................................................... 13
Performance Information..................................................... 13
Description of Shares....................................................... 14
Determination of Net Asset Value............................................ 15
Impact of Year 2000......................................................... 16
Reports to Shareholders..................................................... 16
</TABLE>
LOGO
300 South Wacker Drive, Chicago, Illinois 60606
Wayne Hummer Investment Trust (the "Trust") is a no-load, diversified, open-end
management investment company consisting of two investment portfolios (referred
to individually as a "Fund" and collectively as "Funds") each operating as a
separate mutual fund with its own investment objectives and policies designed
to meet its specific investment goals. The primary investment objective of the
Trust's Wayne Hummer Growth Fund (the "GROWTH FUND") is long-term capital
growth. Current income is a secondary objective. The Growth Fund pursues its
objectives primarily through investment in common stocks and other securities
that the Trust's investment adviser believes have potential for long-term capi-
tal growth. The investment objective of the Trust's Wayne Hummer Income Fund
(the "INCOME FUND") is to achieve as high a level of current income as is con-
sistent with prudent investment management. The Income Fund pursues its objec-
tive primarily through investment in publicly-traded, investment grade debt se-
curities. An investment in the Trust is not a deposit or obligation of or guar-
anteed or issued by any bank, the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other agency. Assistance with opening an account
and information about the Trust may be obtained from Wayne Hummer Investments
L.L.C. ("Wayne Hummer") at the above address or by telephone at one of the fol-
lowing numbers:
CHICAGO RESIDENTS (312) 431-1700
TOLL-FREE (800) 621-4477
This prospectus sets forth concisely information about the Trust that a pro-
spective investor ought to know before investing. Please read this prospectus
and retain it for future reference. A Statement of Additional Information dated
July 31, 1998 (which is incorporated herein by reference) has been filed with
the Securities and Exchange Commission. It may be obtained from the Trust at no
charge by calling one of the numbers listed above or by writing to Wayne Hummer
at the above address.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
LOGO
---------------
The date of this prospectus is July 31, 1998.
<PAGE>
SUMMARY OF EXPENSE INFORMATION
<TABLE>
<CAPTION>
FUND
-------------
GROWTH INCOME
------ ------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases or Reinvested Divi-
dends.......................................................... None None
Deferred Sales Load............................................. None None
Redemption Fee.................................................. None None
Exchange Fee.................................................... None None
Annual Trust Operating Expenses (as a percentage of average net
assets)
Management Fees................................................. .77% .50%
12b-1 Fees...................................................... None None
Other Expenses (primarily custodian, transfer agent and profes-
sional fees)................................................... .19% .51%
---- -----
Total Trust Operating Expenses................................ .96% 1.01%
==== =====
</TABLE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
An investor would pay the following ex-
penses on a $1,000 investment, assum-
ing (1) a 5% annual return, and (2)
redemption at the end of each time pe-
riod. As noted in the table above, the
Trust does not charge any redemption
fee................................... Growth $10 $31 $53 $118
Income $10 $32 $56 $124
</TABLE>
The purpose of the preceding table and example is to assist investors in
understanding the various costs and expenses that an investor (referred to
herein as a "Shareholder") in the Trust will bear, directly and indirectly.
The example should not be considered a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown. The
example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission and is not intended to be representative of
past or future performance of the Trust. See "MANAGEMENT OF THE TRUST" and
"FINANCIAL HIGHLIGHTS" for further information.
FINANCIAL HIGHLIGHTS FOR THE GROWTH FUND
(for a Share outstanding throughout each year)
The table below reflects the results of the Growth Fund's operation for each
of the ten fiscal years in the period ended March 31, 1998. The Growth Fund's
audited financial statements and information in the table for the most recent
five years, including the report thereon of Ernst & Young LLP, independent
auditors, are included in the Growth Fund's annual report for the year ended
March 31, 1998 which is incorporated by reference into the Statement of
Additional Information. The Growth Fund's annual report also contains
additional performance information. The Statement of Additional Information
and/or the Annual Report may be obtained from Wayne Hummer upon request and
without charge.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $28.03 $26.37 $23.43 $ 21.23 $21.72 $20.17 $18.04 $16.54 $14.45 $13.79
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.19 .26 .32 .32 .28 .28 .36 .46 .30 .27
Net realized and
unrealized gains
(losses) on
investments............ 10.57 2.69 3.41 2.40 (0.42) 1.70 2.32 2.23 2.39 0.75
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............ 10.76 2.95 3.73 2.72 (0.14) 1.98 2.68 2.69 2.69 1.02
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (0.20) (0.29) (0.31) (0.31) (0.28) (0.29) (0.39) (0.44) (0.24) (0.20)
Distributions from net
realized gain on
investments............ (2.49) (1.00) (0.48) (0.21) (0.07) (0.14) (0.16) (0.75) (0.36) (0.16)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
Total distributions.... (2.69) (1.29) (0.79) (0.52) (0.35) (0.43) (0.55) (1.19) (0.60) (0.36)
-------- -------- -------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
YEAR................... $36.10 $28.03 $26.37 $23.43 $21.23 $21.72 $20.17 $18.04 $16.54 $14.45
======== ======== ======== ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN............ 40.57% 11.61% 16.15% 13.04% (0.69)% 9.94% 15.14% 17.47% 18.88% 7.58%
RATIOS AND SUPPLEMENTARY
DATA
Net assets, end of year
(000's)................ $140,743 $104,214 $102,608 $94,770 $92,391 $93,198 $55,837 $32,445 $24,988 $21,174
Ratio of expenses to
average net
assets (a)............. 0.96% 0.99% 1.06% 1.07% 1.07% 1.12% 1.23% 1.36% 1.50% 1.50%
Ratio of net investment
income to average net
assets (a)............. 0.58% 0.97% 1.29% 1.44% 1.33% 1.41% 2.01% 2.87% 1.91% 1.83%
Portfolio turnover rate. 7% 9% 6% 3% 2% 1% 3% 13% 3% 12%
Average commission rate. 0.0569 0.0551 -- -- -- -- -- -- -- --
</TABLE>
- -------
NOTE TO FINANCIAL HIGHLIGHTS FOR THE GROWTH FUND:
(a) During the year ended March 31, 1989, expenses in excess of the expense
limitation of 0.39%, were reimbursed by the Investment Adviser.
LOGO
<PAGE>
FINANCIAL HIGHLIGHTS FOR THE INCOME FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The table below reflects the results of the Income Fund's operation for the
twelve month periods ended March 31, 1998, 1997, 1996, 1995 and 1994 and for
the four month period ended March 31, 1993 (since the Income Fund's inception
December 1, 1992). The Income Fund's audited financial statements and
information in the table, including the report thereon of Ernst & Young LLP,
independent auditors, are included in the Income Fund's annual report for the
year ended March 31, 1998 which is incorporated by reference into the
Statement of Additional Information. The Income Fund's annual report also
contains performance information. The Statement of Additional Information
and/or the annual report may be obtained from Wayne Hummer upon request and
without charge.
<TABLE>
<CAPTION>
DECEMBER
1, 1992
THROUGH
YEAR ENDED MARCH 31, MARCH
--------------------------------------------- 31,
1998 1997 1996 1995 1994 1993(A)
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD......... $ 14.66 $ 14.95 $ 14.69 $ 15.10 $ 15.41 $ 15.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income. 0.94 0.92 1.02 0.99 0.95 0.25
Net realized and
unrealized gains
(losses) on invest-
ments................ 0.72 (0.29) 0.26 (0.42) (0.26) 0.41
------- ------- ------- ------- ------- -------
Total from invest-
ment operations.... 1.66 0.63 1.28 0.57 0.69 0.66
LESS DISTRIBUTIONS:
Dividends from net in-
vestment income...... (0.94) (0.92) (1.02) (0.98) (0.95) (0.25)
Dividends from net re-
alized gains on
investments.......... 0.00 0.00 0.00 0.00(d) (0.05) 0.00
------- ------- ------- ------- ------- -------
Total distributions. (0.94) (0.92) (1.02) (0.98) (1.00) (0.25)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD................. $ 15.38 $ 14.66 $ 14.95 $ 14.69 $15.10 $15.41
======= ======= ======= ======= ======= =======
TOTAL RETURN............ 11.25% 4.32% 8.79% 4.16% 4.42% 4.31%
RATIOS AND SUPPLEMENTARY
DATA
Net assets, end of pe-
riod (000's)......... $21,304 $21,998 $25,398 $26,352 $33,652 $19,135
Ratio of expenses to
average net assets... 1.01% 1.01% 0.91% 0.94% 1.13% 1.39%(b)(c)
Ratio of net invest-
ment income to aver-
age net assets....... 6.00% 6.25% 6.80% 6.70% 6.14% 5.58%(b)(c)
Portfolio turnover
rate................. 28% 39% 46% 32% 86% 141%(c)
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS FOR THE INCOME FUND:
(a) Commencement of operations was December 1, 1992.
(b) During the fiscal period ended March 31, 1993, expenses in excess of the
expense limitation of 0.10% were reimbursed by the Investment Adviser.
(c) Determined on an annualized basis.
(d) Less than $.01 per share.
LOGO
<PAGE>
INTRODUCTION
The Trust is a no-load, diversified, open-end management investment company
organized as a Massachusetts business trust on September 29, 1983, and
consisting of two Funds, each operating as a separate mutual fund with its own
investment objectives and policies designed to meet its specific investment
goals. An objective of the Trust is to provide its investors with access to
professional advice and portfolio management resources that are normally
beyond the reach of most individual investors. As a "no-load" mutual fund, the
Trust imposes no commissions or charges on its investors when its shares of
either Fund ("Shares" or "Trust Shares") are purchased or redeemed. Shares are
distributed by Wayne Hummer pursuant to a Distribution Agreement. See
"MANAGEMENT OF THE TRUST."
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUNDS
GROWTH FUND. The primary investment objective of the Growth Fund is to
achieve long-term capital growth. Current income is a secondary objective. The
Growth Fund pursues these investment objectives by investing primarily in
common stocks that the Growth Fund's investment adviser believes have good
long-term growth possibilities, such as the common stocks of companies in
cyclical industries during periods when their common stocks appear to possess
above average potential for capital appreciation. Due to market fluctuations
and the risks inherent in the ownership of all common stocks and other
investments, there can be no assurance that the Growth Fund will achieve its
objectives. The Growth Fund will, however, seek to reduce these risks through
careful management and by investing in a diversified portfolio to enhance
opportunities for above average long-term growth of capital. The Growth Fund's
investment objectives may be changed by the Board of Trustees without
shareholder approval.
Although the Growth Fund normally invests primarily in common stocks of
domestic corporations, occasionally, when such securities are believed to
offer good opportunities for long-term capital growth, the Growth Fund may
make limited investments in preferred stocks and bonds and convertible
debentures rated not less than BBB by Standard and Poor's Corporation ("S&P")
or Baa by Moody's Investors Service, Inc. ("Moody's"). Like higher rated
securities, securities rated in the BBB or Baa categories are considered to
have adequate capacity to pay principal and interest, although they may have
fewer protective provisions than higher rated securities and thus may be
adversely affected by severe economic circumstances and are considered to have
speculative characteristics with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation
than is the case with securities in the higher rating categories. If a
defensive position is deemed desirable due to a change in economic or market
conditions, the Growth Fund may, as discussed more fully below, purchase put
and call options, including stock index options, and write covered call
options. The Growth Fund may also invest on a temporary defensive basis all or
part of its assets in fixed income securities such as investment-grade
commercial paper and corporate bonds, United States Government securities,
certificates of deposit, bankers' acceptances, variable rate notes or other
money market instruments (such as short-term corporate debt instruments), or
it may retain cash.
The Growth Fund usually makes investments with the intention of holding such
investments for at least six months, although purchases and sales of
securities will be made whenever necessary to achieve the Growth Fund's
investment objective. During any period when changing market or economic
conditions are foreseen, shifts in portfolio emphasis could increase the rate
of portfolio turnover. This may increase the amount of expenses and brokerage
commissions incurred by the Growth Fund. Because the major portion of the
Growth Fund's investment portfolio normally consists of common stocks, its net
asset value may be subject to greater fluctuation than a portfolio containing
a substantial portion of fixed income securities.
The Growth Fund may invest up to 5% of its net assets in put and call
options traded on national securities exchanges, including put and call
options on stock indices, and may write (sell) covered call options on
securities held in the Growth Fund's investment portfolio. The aggregate
market value of portfolio securities underlying options written by the Growth
Fund may not exceed 25% of the Growth Fund's net assets. Option transactions
will be used primarily to hedge the Growth Fund's investment portfolio and to
protect portfolio securities from unexpected downturns in the market. The
effectiveness of these investment techniques depends on the investment
adviser's ability to predict movements in both interest rates and stock
prices. The risks involved in writing (selling) covered call options include
the possible inability to effect closing transactions at favorable prices and
the inability to participate in any appreciation of the underlying securities
above the exercise price. The risks involved in purchasing put or call options
include the possible loss of the entire premium paid.
LOGO
<PAGE>
In selecting its portfolio investments, the Growth Fund is subject to
certain restrictions and limitations which are fundamental policies of the
Growth Fund. For instance, the Growth Fund may not invest more than 5% of its
total assets in the securities of any one issuer (other than the United States
Government, its agencies or instrumentalities) or own more than 10% of the
outstanding securities, or more than 10% of the outstanding voting securities,
of any one issuer. The Growth Fund also may not invest more than 25% of its
total assets in any one industry.
If any of the foregoing percentage restrictions are adhered to at the time
of investment, a later increase or decrease in percentage ownership resulting
from a change in the value of the Growth Fund's assets will not result in a
violation. A more detailed discussion of the Growth Fund's investment
practices and restrictions and a discussion of their associated risks are
contained in the Trust's Statement of Additional Information under "Investment
Objectives, Policies and Restrictions."
INCOME FUND. The investment objective of the Income Fund is to achieve as
high a level of current income as is consistent with prudent investment
management. The Income Fund pursues its objective primarily through investment
in publicly-traded, investment grade debt securities. The Income Fund's assets
may be invested in a number of types of securities including, but not limited
to, the following: (1) U.S. dollar-denominated corporate debt securities
(domestic or foreign) which are rated not less than Baa by Moody's or BBB by
S&P; (2) obligations of, or guaranteed by, the United States of America, its
agencies or instrumentalities; (3) obligations (payable in U.S. dollars) of,
or guaranteed by, the Government of Canada or any instrumentality or political
subdivision thereof; (4) municipal debt obligations issued by states,
territories or possessions of the United States or the District of Columbia or
their political subdivisions, agencies or instrumentalities, or multistate
agencies or authorities; (5) commercial paper rated Prime-1 or Prime-2 by
Moody's or A-1 or A-2 by S&P; (6) bank certificates of deposit or banker's
acceptances issued by domestic or Canadian chartered banks having total
deposits in excess of $1 billion; (7) time deposits issued by domestic banks
having total deposits in excess of $1 billion and foreign branches of such
banks; (8) options on securities and on indices as described below to hedge
its portfolio investments and not for speculation; (9) financial futures
contracts and options on financial futures contracts to hedge its portfolio
investments and not for speculation; (10) convertible securities which are
convertible into common stock or other equity securities; and (11) cash or
cash equivalents for temporary defensive purposes. Any securities that are
restricted as to disposition under the federal securities laws or are
otherwise considered to be illiquid will not exceed 15% of the net assets of
the Income Fund. A more detailed discussion of the Income Fund's investment
practices and restrictions and a discussion of their associated risks are
contained in the Trust's Statement of Additional Information under "Investment
Objectives, Policies and Restrictions."
Under normal market conditions, the Income Fund invests at least 65% of its
assets in securities with an average life of between three and ten years, and
expects that the dollar-weighted average life of its portfolio will be between
three and ten years. Average life is the weighted average period over which
the investment adviser expects the principal to be paid, and differs from
stated maturity in that it estimates the effect of expected principal
prepayments and call provisions. With respect to Government National Mortgage
Association ("GNMA") securities and other mortgage-backed securities, average
life is likely to be substantially less than the stated maturity of the
mortgages in the underlying pools. With respect to obligations with call
provisions, average life is typically the next call date on which the
obligation reasonably may be expected to be called. Securities without
prepayment or call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the average life of
mortgage-backed securities and callable obligations may increase substantially
because they are not likely to be prepaid, which may result in greater net
asset value fluctuation.
The Income Fund also may invest in other preferred or debt securities
(including those convertible into or carrying warrants to purchase common
stocks or other equity interests, and privately placed debt securities) that
the investment adviser considers likely to yield relatively high income in
relation to cost.
There are market and investment risks with any security and the value of an
investment in the Income Fund may fluctuate over time. Normally, the value of
the Income Fund's investments varies inversely with changes in interest rates.
There can be no assurance that the objective of the Income Fund will be
achieved. Corporate debt securities rated within the four highest grades by
Moody's or S&P are generally considered to be "investment grade." Like higher
rated debt securities, securities rated in the Baa or BBB categories are
considered to have adequate capacity to pay principal and interest, although
they may have fewer protective provisions than higher rated securities and
thus may be adversely affected by severe economic circumstances and are
considered to have speculative characteristics. The Income Fund
LOGO
<PAGE>
may invest up to 20% of its total assets in fixed income securities that are
rated below Baa by Moody's or BBB by S&P or are non-rated. For a discussion of
lower rated and non-rated securities and related risks, see "Special Risk
Factors--High Yield (High Risk) Bonds" below. The characteristics of the
rating categories are described in the Trust's Statement of Additional
Information under "Appendix A--Ratings of Investments."
The Income Fund may purchase put and call options traded on national
securities exchanges or the Chicago Board of Trade, including put and call
options on stock indices and interest rates, and may write (sell) covered call
options on securities held in the Income Fund's investment portfolio. The
aggregate market value of portfolio securities underlying options written by
the Income Fund may not exceed 5% of the Income Fund's net assets. Option
transactions will be used to hedge the Income Fund's investment portfolio and
to protect portfolio securities from unexpected downturns in the market. The
effectiveness of these investment techniques depends on the investment
adviser's ability to predict movements in both interest rates and stock
prices. The risks involved in writing (selling) covered call options include
the possible inability to effect closing transactions at favorable prices and
the inability to participate in any appreciation of the underlying securities
above the exercise price. The risks involved in purchasing put or call options
include the possible loss of the entire premium paid.
In selecting its portfolio investments, the Income Fund is subject to
certain restrictions and limitations which are fundamental policies of the
Income Fund. For instance, the Income Fund may not invest more than 5% of its
total assets in the securities of any one issuer (other than the United
States, its agencies or instrumentalities) or own more than 10% of the
outstanding securities, or more than 10% of the outstanding voting securities,
of any one issuer. The Income Fund also may not invest more than 25% of its
total assets in any one industry.
If any of the foregoing percentage restrictions are adhered to at the time
of investment, a later increase or decrease in percentage ownership resulting
from a change in the value of the Income Fund's assets will not result in a
violation. A more detailed discussion of the Income Fund's investment
practices and restrictions and a discussion of their associated risks are
contained in the Trust's Statement of Additional Information under "Investment
Objectives, Policies and Restrictions."
SPECIAL RISK FACTORS--HIGH YIELD (HIGH RISK) BONDS. Subject to its specific
investment objective and policies as described above, the Income Fund may
invest up to 20% of its assets in fixed-income securities below investment
grade offering high current income. Such high yield (high risk), fixed-income
securities ordinarily will be in the lower rating categories of recognized
rating agencies or will be non-rated. Lower rated and non-rated securities,
which are sometimes referred to by the popular press as "junk bonds," have
widely varying characteristics and qualities. These lower-rated or non-rated
fixed-income securities are considered, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation and generally will
involve more credit risk than securities in the higher rating categories.
The market values of such lower rated or non-rated securities tend to react
to individual corporate developments to a greater extent than do those of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Such securities also tend to be more sensitive to
economic conditions than higher rated securities. Adverse publicity and
investor perceptions regarding lower rated and non-rated securities, whether
or not based on fundamental analysis, may depress the prices for such
securities. These and other factors adversely affecting the market value of
high yield securities will adversely affect the Income Fund's net asset value.
High yield securities frequently are issued by corporations in the growth
stage of their development. They may also be issued in connection with a
corporate reorganization or a corporate takeover. Companies that issue such
high yielding securities often are highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risk associated
with acquiring the securities of such issuers generally is greater than is the
case with higher rated securities. For example, during an economic downturn or
recession, highly leveraged issuers of high yield securities may experience
financial stress. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
corporate developments, the issuer's inability to meet specific projected
business forecasts, or the unavailability of additional financing among other
factors. The risk of loss from default by the issuer is significantly greater
for the holders of high yield securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer.
Although some risk is inherent in all securities ownership, holders of fixed
income securities have
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a claim on the assets of the issuer prior to the holders of common stock.
Therefore, an investment in fixed income securities generally entails less
risk than an investment in common stock of the same issuer.
The Income Fund may have difficulty disposing of certain high yield
securities because they may have a thin trading market. Because not all
dealers maintain markets in all high yield securities, the Income Fund
anticipates that such securities could be sold only to a limited number of
dealers or institutional investors. The lack of a liquid secondary market may
have an adverse effect on the market price of such securities. The Income
Fund's ability to dispose of particular issues may also make it more difficult
for the Income Fund to obtain accurate market quotations for purposes of
valuing the Income Fund's assets. Market quotations generally are available on
many high yield issues only from a limited number of dealers and may not
necessarily represent firm bids of such dealers or prices for actual sales.
Municipal Obligations are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or multistate agencies
or authorities. While in general, Municipal Obligations are tax exempt
securities having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain issues of Municipal Obligations, offer
yields comparable to and in some cases greater than the yields available on
other permissible Income Fund investments. Municipal Obligations generally
include debt obligations issued to obtain funds for various public purposes as
well as certain industrial development bonds issued by or on behalf of public
authorities. Municipal Obligations are classified as general obligation bonds,
revenue bonds or notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general
taxing power. Industrial development bonds, in most cases, are revenue bonds
that do not carry the pledge of the credit of the issuing municipality, but
generally are guaranteed by the corporate entity on whose behalf they are
issued. Notes are short-term instruments which are obligations of the issuing
municipalities or agencies and are sold in anticipation of a bond sale,
collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities although
such agreements are obligations of a municipality, no assurance can be given
that the municipality will appropriate funds for such lease payments.
Municipal Obligations bear fixed, variable or floating rates of interest. The
Income Fund may invest in Municipal Obligations, the ratings of which
correspond with the ratings of other permissible Income Fund investments.
Dividends received by shareholders of Income Fund attributable to interest
income received by the Income Fund from Municipal Obligations will be subject
to federal income tax.
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one
to ten years; and Treasury Bonds generally have initial maturities greater
than ten years. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association ("GNMA") pass-through certificates, are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
Home Loan Banks, by the right of the issuer to borrow from the Treasury;
others, such as those issued by the Federal National Mortgage Association
("Freddie Mac"), by discretionary authority of the U.S. Government to purchase
certain obligations of the agency or instrumentality; and others, such as
those issued by the Student Loan Marketing Association, only by the credit of
the agency or instrumentality. While the U.S. Government provides financial
support to such U.S. Government sponsored agencies or instrumentalities, no
assurance can be given that it will always do so since it is not so obligated
by law. The Income Fund will invest in such securities only when it is
satisfied that the credit risk with respect to the issuer is minimal.
Additional information concerning high yield (high risk) securities appears
in the Trust's Statement of Additional Information under "Appendix A--Ratings
of Investments."
ADDITIONAL INVESTMENT INFORMATION. Zero coupon securities and pay-in-kind
bonds involve additional special considerations. Zero coupon securities are
debt obligations that do not entitle the holder to any periodic payments of
interest prior to maturity or a specified cash payment date when the
securities begin paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from their face amount or par
value. The market prices of zero coupon securities are generally more volatile
than the market prices of securities that pay interest periodically and are
likely to respond to changes in interest rates to a greater degree than do
securities paying interest
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currently having similar maturities and credit quality. Zero coupon, pay-in-
kind or deferred interest bonds carry additional risk in that, unlike bonds
that pay interest throughout the period to maturity, the Income Fund will
realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Income Fund may obtain no
return at all on its investment. In addition, pay-in-kind bonds are generally
issued by corporations whose cash flows are currently insufficient to service
the intended debt and whose balance sheets already reflect a significant
amount of debt. The utilization of pay-in-kind bonds has the effect of adding
to this debt burden and results in greater risk to the investor.
Current federal income tax law requires the holder of a zero coupon security
or of certain pay-in-kind bonds (bonds which pay interest through the issuance
of additional bonds) to accrue income with respect to these securities prior
to the receipt of cash payments. To maintain its qualification as a registered
investment company and avoid liability for federal income and excise taxes,
the Income Fund will be required to distribute income accrued with respect to
these securities and may be required to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
The Income Fund will not normally engage in the trading of securities for
the purpose of realizing short-term profits, but will adjust its portfolio as
considered advisable in view of prevailing or anticipated market conditions
and its investment objective. Accordingly, the Income Fund may sell fixed
income securities in anticipation of a rise in interest rates. Frequency of
portfolio turnover will not be a limiting factor should the investment adviser
deem it desirable to purchase or sell securities. Higher portfolio turnover
involves correspondingly greater brokerage commissions or other transaction
costs. Higher portfolio turnover may result in the realization of greater net
short-term capital gains.
The Income Fund may take full advantage of the entire range of maturities of
fixed income securities and may adjust the average maturity of its portfolio
from time to time, depending upon its assessment of relative yields on
securities of different maturities and its expectations of future changes in
interest rates. Thus, the average maturity of its portfolio may be relatively
short (under 5 years, for example) at some times and relatively long (over 15
years, for example) at other times. Generally, since the values of short-term
debt securities tend to be more stable than longer term debt securities, the
portfolio's average maturity will be shorter when interest rates are expected
to rise and longer when interest rates are expected to fall.
Neither the Growth Fund nor the Income Fund may borrow money except for
temporary or emergency purposes and not for leverage purposes, and then only
in an amount up to 5% of the net assets of the Growth Fund and up to 10% of
the net assets of the Income Fund, in order to meet redemption requests
without immediately selling any portfolio securities or other assets. These
Funds may not pledge their assets in an amount exceeding the amount of the
borrowings secured by such pledge.
DELAYED DELIVERY TRANSACTIONS. The Income Fund may purchase or sell
portfolio securities on a when-issued or delayed delivery basis. When-issued
or delayed delivery transactions involve a commitment by the Income Fund to
purchase or sell securities with payment and delivery to take place in the
future in order to secure what is considered to be an advantageous price or
yield to the Income Fund at the time of entering into the transaction. The
value of fixed yield securities to be delivered in the future will fluctuate
as interest rates vary. Because the Income Fund is required to set aside cash
or liquid high grade securities to satisfy its commitments to purchase when-
issued or delayed delivery securities, flexibility to manage the Income Fund's
investments may be limited if commitments to purchase when-issued or delayed
delivery securities were to exceed 25% of the value of its assets.
To the extent the Income Fund engages in when-issued or delayed delivery
transactions, it will do so for the purpose of acquiring portfolio securities
consistent with the Income Fund's investment objective and policies and not
for the purpose of investment leverage or to speculate in interest rate
changes. The Income Fund will make commitments to purchase securities on a
when-issued or delayed delivery basis only with the intention of actually
acquiring the securities, but the Income Fund reserves the right to sell these
securities before the settlement date if deemed advisable. See "Investment
Objectives, Policies and Restrictions" in the Statement of Additional
Information.
ASSET-BACKED SECURITIES. The Income Fund may invest in asset-backed
securities. Asset-backed securities are securities which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, most often a pool or pools of similar assets
(e.g., trade receivables). Asset-backed commercial paper,
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one type of asset-backed security, is issued by a special purpose entity
organized solely to issue the commercial paper and to purchase the interest in
the assets. The credit quality of these securities depends primarily upon the
quality of the underlying assets and the level of credit support and/or
enhancement provided.
The underlying assets (e.g., loans) are often subject to prepayments which
shorten the securities' weighted average life and may lower their return. If
the credit support or enhancement is exhausted, losses or delays in payment
may result if the required payments of principal and interest are not made.
The value of these securities also may change because of changes in the
market's perception of the creditworthiness of the servicing agent for the
pool, the originator of the pool, or the financial institution providing the
credit support or enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Income Fund may invest in
collateralized mortgage obligations (CMOs). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although
certain classes of CMOs have priority over others with respect to the receipt
of prepayments on the mortgages. Therefore, depending on the type of CMOs in
which the Income Fund invests, the investment may be subject to a greater or
lesser risk of prepayment than other types of mortgage-related securities.
MORTGAGE-BACKED SECURITIES. The Income Fund may invest in mortgage-backed
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Some of these securities, such as GNMA certificates, are
backed by the full faith and credit of the U.S. Treasury while others, such as
Freddie Mac certificates, are not.
Mortgage-backed securities are securities representing interests in a pool
of mortgages. Principal and interest payments made on the mortgages in the
underlying mortgage pool are passed through to the Income Fund. Unscheduled
prepayments of principal shorten the securities' weighted average life and may
lower their total return. The value of these securities also may change
because of changes in the market's perception of the creditworthiness of the
federal agency that issued them. In addition, the mortgage securities market
in general may be adversely affected by changes in governmental regulation or
tax policies.
REPURCHASE AGREEMENTS. The Income Fund may enter into repurchase agreements
with a securities dealer or a bank which is a member of the Federal Reserve
System. In the event of a bankruptcy or default of certain sellers of
repurchase agreements, the Income Fund could experience costs and delays in
liquidating the underlying security, which is held as collateral, and the
Income Fund might incur a loss if the value of the collateral held declines
during this period. There is no limit on the percentage of the portfolio's
total assets that may be invested in repurchase agreements, except that
repurchase agreements maturing in more than 7 days, together with any
securities that are restricted as to disposition under the federal securities
laws or are otherwise considered to be illiquid, will not exceed 15% of the
net assets of the Income Fund.
PREFERRED STOCK. Without regard to quality, the Income Fund may invest up to
25% of its total assets (not including cash) in preferred stock. Preferred
stocks are securities that represent an ownership interest in a corporation
providing the owner with claims on the company's earnings and assets before
common stock owners, but after bond owners.
PURCHASE OF SHARES
The Trust's Shares are offered on a continuous basis and sold without a
sales load at their net asset value next determined after an order in proper
form and payment is received. See "DETERMINATION OF NET ASSET VALUE." The
minimum initial investment for the Growth Fund is generally $1,000 and
subsequent investments must generally be at least $500. The minimum initial
investment for the Income Fund is generally $2,500 and subsequent investments
must generally be at least $1,000. The foregoing minimum investments may be
lower for custodian accounts and accounts that are part of an employer
sponsored and administered 401(K) pension plan. Investments may be made in any
amount in excess of these minimums. Shares may be purchased through the
Trust's Distributor, Wayne Hummer, after establishing a brokerage account with
Wayne Hummer. There is no charge for opening such a brokerage account and no
sales charge for purchasing Shares through Wayne Hummer. The Trust reserves
the right, in its sole discretion, to vary at any time the initial and
subsequent investment minimums, to withdraw the offering or to refuse any
purchase order.
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To purchase Shares of the Trust, a new investor should mail a completed new
account application to the Trust's Distributor and Shareholder Service Agent,
Wayne Hummer, 300 South Wacker Drive, Chicago, Illinois 60606, and a brokerage
account will then be established in the name of the investor. An investor who
already maintains a brokerage account with Wayne Hummer should contact his or
her investment executive to purchase Shares of the Trust. Purchases will be
effected through the investor's brokerage account and all Shares purchased are
entered and credited to the account. Payment for Trust Shares must be made to
Wayne Hummer in cash or by check, draft or wire transfer unless the necessary
funds are already available as a free credit balance in the investor's
brokerage account. Trust Shares may be purchased through Wayne Hummer in
person, by mail or, where an investor already has a free credit balance in his
or her brokerage account, by telephone. Orders received by Wayne Hummer with
payment prior to the close of trading on the New York Stock Exchange
(generally 3:00 p.m. Chicago time) will be effected that business day. Orders
received after that time will be effected the next business day. In the case
of an order for the purchase of Trust Shares paid for by check, Wayne Hummer
advances federal funds on behalf of the Shareholder, though if the check is
subsequently dishonored, Wayne Hummer has the right to redeem such Trust
Shares and to retain any dividends or distributions made with respect thereto.
The Trust may suspend the determination of the net asset value, which would
delay the normal processing of orders, in certain unusual circumstances. See
"DETERMINATION OF NET ASSET VALUE." "Business day" as used in this prospectus
means any day that the New York Stock Exchange and federal banks in both
Illinois and Massachusetts are open for business.
SYSTEMATIC INVESTMENT PLAN. Shareholders of the Trust (except retirement
plan accounts) can arrange to have a pre-authorized amount ($100 minimum)
drawn on their bank account and automatically invested in the specific Fund(s)
of the Trust on a specified day of each month. An authorization agreement
which contains details of the plan can be obtained from the Shareholder's
Wayne Hummer investment executive. The Systematic Investment Plan may be
terminated by the Trust at any time and by the Shareholder at any time by
notifying his or her investment executive.
PAYROLL DIRECT DEPOSIT PLAN. Once a Shareholder meets the minimum initial
investment requirement of the specific Fund(s), additional Shares of the
respective Fund(s) may be purchased through Payroll Direct Deposit. Through
this Plan, periodic investments (minimum $100) are made automatically from the
Shareholder's payroll check into his or her existing Trust account. By
enrolling in the Plan, the Shareholder authorizes his or her employer or its
agents to deposit a specified amount from the Shareholder's payroll check into
the Trust's bank account for the purchase of additional Shares. In most cases,
the Shareholder's Trust account will be credited the day after the amount is
received by the Trust's bank. In order to participate in the Plan, the
Shareholder's employer must have direct deposit capabilities through Automated
Clearing House available to its employees. The Plan may be used for other
direct deposits, such as social security checks, military allotments, and
annuity payments.
To establish Payroll Direct Deposit, a Shareholder should call his or her
investment executive to obtain the necessary information. Once the Plan is
established, a Shareholder may alter the amount of the deposit, alter the
frequency of the deposit, or terminate participation in the Plan by notifying
his or her employer.
EXCHANGE PRIVILEGE. Shareholders of the Trust have the unlimited privilege
(without charge) of exchanging their Shares of the Growth Fund or the Income
Fund for each other or for shares of the Wayne Hummer Money Fund Trust, a
money market mutual fund (the "Money Fund"). Similarly, shares of the Money
Fund may be exchanged for Shares of the Growth Fund and/or the Income Fund
without charge. A Shareholder desiring to utilize the exchange privilege
should contact his or her Wayne Hummer investment executive at the phone
number or address shown on the cover of this prospectus to obtain information
about the Money Fund and exchange procedures. However, exchanges may only be
made for such Funds which are available for sale in the Shareholder's state of
residence. No guarantee can be made as to the availability of the telephone
exchange privilege (or the telephone redemption privilege discussed below)
during emergency situations or unusual market conditions. Before exchanging
Trust Shares, Shareholders should read the Money Fund prospectus carefully.
Exchanges will be effected through the redemption of Trust Shares tendered for
exchange and the purchase of Money Fund shares at their respective net asset
values next determined after receipt by Wayne Hummer of the exchange request.
For federal income tax purposes, an exchange constitutes a sale with respect
to which a gain or loss may be realized depending upon whether the value of
the Trust Shares being exchanged is more or less than the Shareholder's
adjusted cost basis.
RETIREMENT PLANS. Wayne Hummer provides several prototype self-directed
retirement plans, including an Individual Retirement Account Plan, a
Simplified Employee Pension Plan and a Defined Contribution Plan (formerly
"Keogh Plan"), through which an investor may invest in the Trust on a tax-
sheltered basis. The minimum initial purchase
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of Growth Fund Shares with respect to each account under the various types of
retirement plans is $500 and subsequent investments must be at least $200. The
minimum initial purchase of Income Fund Shares with respect to each account
under the various types of retirement plans is $2,000 and subsequent
investments must be at least $500. Orders for Trust Shares to be purchased for
a retirement plan account must be placed by Wayne Hummer. A retirement plan
account may combine investments in Trust Shares with investments in shares of
Wayne Hummer Money Fund Trust or in other securities purchased through Wayne
Hummer.
Additional information on retirement plans provided by Wayne Hummer,
including a description of applicable service fees and limitations on
contributions and withdrawals, may be obtained by calling Wayne Hummer at the
telephone numbers shown on the cover of this prospectus or by writing to Wayne
Hummer, Attention: Retirement Plans Department, 300 South Wacker Drive,
Chicago, Illinois 60606.
REDEMPTION OF SHARES
Trust Shares may be redeemed without charge at any time at their net asset
value next determined after the redemption order is received in proper form.
The value of a Shareholder's Trust Shares upon redemption may be more or less
than the cost of such Shares, depending on the net asset value of the Trust's
Shares at the time of redemption.
A Shareholder may redeem Trust Shares through his or her Wayne Hummer
investment executive by telephone, mail or in person. Such redemption requests
should state the Shareholder's account number. A redemption request received
by Wayne Hummer prior to the close of trading on the New York Stock Exchange
is effected that day and the proceeds credited to the Shareholder's Wayne
Hummer brokerage account the next business day. A redemption request received
after the close of trading will be effected the next business day. The
telephone redemption procedure may be terminated by the Trust or Wayne Hummer
at any time. If, at the time the redemption request is made, a Shareholder has
requested that Wayne Hummer transmit the redemption proceeds by mail, the
proceeds normally will be mailed on the day they are credited to the
Shareholder's Wayne Hummer brokerage account, or, if the request to transmit
the proceeds by mail is made subsequent to the request to redeem, on the next
business day after receipt of the Shareholder's request to transmit the
proceeds by mail. In either event, payment will be made within seven days
after the redemption is effected or the request to transmit proceeds is
received. The Trust may suspend the right of redemption and may postpone the
date of payment for Shares for more than seven days under certain unusual
circumstances. See "DETERMINATION OF NET ASSET VALUE."
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem Shares (other than Shares purchased for a
retirement plan provided by Wayne Hummer) for their then current value if at
any time the value of the Shareholder's account is less than $750 in the case
of the Growth Fund or $2,000 in the case of the Income Fund unless this is due
to a decline in the market value of the Trust's assets. In such event, a
Shareholder first will be notified that the value of his or her total
investment is less than the minimum and allowed two months to make an
additional investment before the redemption is made. The proceeds of any such
redemption will be credited to the Shareholder's Wayne Hummer brokerage
account, if applicable, or will be sent to the Shareholder by mail.
TRANSACTIONS THROUGH BROKER-DEALERS AND AGENTS OTHER THAN WAYNE HUMMER
Shares may be purchased or redeemed through broker-dealers or agents
appointed by Wayne Hummer, who may charge Shareholders a fee for their
services. The Fund may agree to modify or waive its purchase and redemption
procedures or requirements in order to facilitate these transactions.
MANAGEMENT OF THE TRUST
Wayne Hummer Management Company (the "Investment Adviser"), 300 South Wacker
Drive, Chicago, Illinois 60606, acts as investment adviser of the Trust and
provides the Trust with operating facilities and management and portfolio
accounting services and serves as investment adviser to the Money Fund, as
well as to various individual, institutional and fiduciary accounts. The
Investment Adviser, organized in 1981, is owned by the members of Wayne
Hummer, a securities brokerage firm, which acts as Shareholder Service Agent
and Distributor for the Trust.
Subject to the general supervision of the Board of Trustees, the Investment
Adviser is responsible for management of the Trust's Funds and reviews the
holdings of the Funds in light of its own research analysis and information
from other relevant sources. The Investment Adviser determines the securities
to be purchased, held and sold by the Funds and places all orders.
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Thomas J. Rowland is the portfolio manager of the Growth Fund. Mr. Rowland,
a member of Wayne Hummer, joined Wayne Hummer in 1987. He serves as president
of both Wayne Hummer Management Company and the Trust. Prior to joining Wayne
Hummer, Mr. Rowland spent 14 years with CNA Financial Corporation as a
portfolio manager, research analyst and securities trader. In addition, he
spent five years with the trust department at Harris Trust & Savings Bank. He
received a BBA in finance from the University of Notre Dame and an MBA from
Northwestern University. He is a Chartered Financial Analyst, a Fellow of the
Financial Analysts Federation, a member of the Association for Investment
Management and Research, the Investment Analysts Society of Chicago, and the
Security Traders Association of Chicago.
David P. Poitras is the portfolio manager of the Income Fund. Mr. Poitras, a
member of Wayne Hummer, joined Wayne Hummer in 1985. He serves as vice
president of the Trust and President and portfolio manager of the Wayne Hummer
Money Fund Trust. He earned a Bachelor of Science degree in finance from
Northern Illinois University. He is a member of the Municipal Bond Club of
Chicago and the Bond Club of Chicago.
As compensation for its advisory and management services to the Trust, the
Investment Adviser receives an annual fee which is computed and accrued daily
and payable monthly. The Investment Adviser receives an annual fee of .80 of
1% of the average daily net assets of the Growth Fund up to $100 million, plus
.65 of 1% of the next $150 million of average daily net assets, plus .50 of 1%
of average daily net assets in excess of $250 million, and an annual fee of
.50 of 1% of the average daily net assets of the Income Fund up to $100
million, plus .40 of 1% of the next $150 million of average daily net assets,
plus .30 of 1% of average daily net assets in excess of $250 million. The
advisory fees paid by the Growth Fund are higher than fees paid by most other
mutual funds, including funds with different investment objectives such as
money market funds. The Investment Adviser has agreed to waive its fees for a
particular Fund to the extent that such Fund's ordinary operating expenses
during any fiscal year exceed 1.5% of the average daily net assets of the
Fund. Expenses which are not subject to these limitations are interest, taxes,
brokerage commissions and extraordinary items.
The Investment Adviser also provides the Trust with certain portfolio
accounting services under the terms of a Portfolio Accounting Services
Agreement. The Investment Adviser maintains the accounting books and records
pertaining to each Fund that constitute the record forming the basis for
financial statements of the Funds; maintains capital stock accounts for each
Fund; prepares a daily trial balance for each Fund; calculates the net asset
value of each Fund; maintains all records of a financial nature to each Fund's
transactions; and processes special ledgers and other reports when requested.
As compensation for its accounting services to the Trust, the Investment
Adviser receives an annual fee of .01 of 1% of average daily net assets of
each Fund, which is computed and accrued daily and payable monthly; but such
fee shall not exceed $15,000 per Fund per annum. In addition, the Investment
Adviser receives an equipment fee of $50 per Fund per month and is reimbursed
for its out-of-pocket costs for obtaining securities pricing services and the
license for use of portfolio accounting software, and for other out-of-pocket
costs which are incurred in providing the pricing and software services.
Wayne Hummer acts as the Distributor of the Trust's Shares and the
Shareholder Service Agent to provide information and services to existing and
potential Shareholders, such as: processing new Shareholder account
applications, converting funds into or advancing federal funds for the
purchase of Shares, handling purchase orders and redemption requests, and
answering questions concerning the Trust and Shareholders' transactions with
the Trust. Wayne Hummer does not receive any compensation for its services as
the Trust's Distributor, though it may be reimbursed by the Trust for certain
out-of-pocket costs which it advances on behalf of the Trust in connection
with its services as Shareholder Service Agent such as postage, data entry,
stationery, and all external forms or other printed material. Any such
reimbursable expenses will be monitored for reasonableness by the Treasurer of
the Trust. Further information with respect to the management of the Trust is
contained in the Trust's Statement of Additional Information under "Management
of the Trust" and "Investment Advisory and Other Services."
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Trust distributes to Shareholders substantially all of its net ordinary
income and any net capital gains realized from the sale of portfolio
securities. The Growth Fund normally declares ordinary income dividends in
April, July, October and December. The Income Fund normally declares ordinary
dividends monthly. Net realized capital gains for both Funds, if any, will be
paid in late April and December.
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Dividends and capital gains distributions are automatically reinvested in
Fund Shares at net asset value on the payable date, without a sales charge,
unless the Shareholder instructs otherwise. Such instructions take effect
within 10 days after they are received in writing by Wayne Hummer. Dividends
are taxable to Shareholders whether they are received in cash or reinvested in
additional Shares, as described below.
TAXES
Each Fund intends to continue to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). If so
qualified, a Fund will not be subject to federal income tax on its net
investment income and net realized capital gains distributed to Shareholders.
Dividends paid by the Funds from their net investment income and
distributions of the Fund's net realized capital gains are taxable to
Shareholders whether they are paid in cash or are reinvested in additional
Shares. For federal income tax purposes, distributions of net investment
income and net short-term capital gains are taxable to Shareholders as
ordinary income, while distributions of long-term capital gains are taxable to
Shareholders as long-term capital gains regardless of the length of time the
Shareholder has held Shares of a Fund. Under current law, long-term capital
gains received by corporations are taxed at the same rates as ordinary income;
long-term capital gains received by individuals are taxed at a maximum rate of
20% (for assets held by the Funds for more than 1 year).
Dividends and distributions declared by the Funds in October, November or
December to Shareholders of record as of a date in one of those months and
paid before the following February 1 are treated as paid for federal income
tax purposes on December 31 of the calendar year in which declared. A portion
of the ordinary income dividends paid by the Growth Fund are expected to be
eligible for the dividends-received deduction available to corporate
Shareholders. Only a small portion, if any, of the ordinary income dividends
paid by the Income Fund are expected to qualify for the dividends-received
deduction. Capital gains distributions are not eligible for the dividends-
received deduction. Not later than 60 days after the Trust's fiscal year end,
the Trust will send to its Shareholders a notice designating the amount of any
capital gain distributions, and for corporate Shareholders any distributions
eligible for the dividends-received deduction, which were made during such
year. Shareholders are advised to consult with their tax advisors concerning
their individual tax situations.
A dividend received shortly after the purchase of Shares reduces the net
asset value of the Shares by the amount of the dividend and, although in
effect a return of capital, will be taxable to the Shareholder. If the net
asset value of Shares were reduced below the Shareholder's cost by dividends
representing gains realized on sales of securities, such distributions would
be a return of investment though taxable as stated above.
The Funds are required by law to withhold federal income tax at a rate of
31% from taxable distributions and redemption proceeds paid to Shareholders
who do not furnish their correct taxpayer identification number (in the case
of individuals, their social security number) and in certain other
circumstances.
PERFORMANCE INFORMATION
GROWTH AND INCOME FUNDS. From time to time, in advertisements or reports to
shareholders, each Fund may compare its performance to that of the Consumer
Price Index or various unmanaged indexes such as the Dow Jones Industrial
Average, the Standard & Poor's 500, the Russell Mid-Cap Index, the Lehman
Brothers Bond Indices and the Merrill Lynch Bond Indices. Such Fund may also
quote mutual fund quotation services, such as Lipper Analytical Services, Inc.
or similar industry services, or industry publications such as Morningstar,
Inc., Wall Street Journal, Investor's Daily, Forbes, Barron's, The Chicago
Tribune, USA Today, Institutional Investor and Registered Representative for
purposes of comparing their rank or performance to that of other mutual funds
having similar investment objectives. Performance comparisons should not be
considered representative of the future performance of the Fund.
LOGO
<PAGE>
Additionally, from time to time, a Fund may quote average annual total
return, total return and yield figures for its performance in advertisements
and other materials furnished to present or prospective Shareholders. Each of
these figures is based upon historical results and is not necessarily
representative of the future performance of the Fund.
Average annual total return and total return figures measure both the net
income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in the particular
Fund for the period in question, assuming the reinvestment of all dividends
and distributions during the period. Thus, these figures reflect the change in
value of an investment in such Fund during a specified period. Average annual
total return will be quoted for at least one-, five- and ten-year periods (or
if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of such Fund) ending on a recent calendar quarter.
Average annual total return figures represent the compound annual percentage
change in the value of a specific dollar invested in such Fund's shares for
the period in question. Total return figures represent the aggregate
percentage or dollar value change over the entire measurement period.
Yield is a measure of the net investment income per share earned over a
specific one-month or 30-day period expressed as a percentage of the
particular Fund's net asset value per share at the end of the period. Yield is
expressed as an annualized figure representing what such Fund's annual yield
would be if the Fund generated the same level of monthly net investment income
over the one-year period. Semi-annual compounding is assumed for the Income
Fund.
The Funds' shares are sold at net asset value, and performance and net asset
value will fluctuate. Shares of each Fund are redeemable by an investor at the
then current net asset value, which may be more or less than original cost.
Please refer to the Statement of Additional Information under "Performance
Information" for further information concerning performance of a particular
Fund.
DESCRIPTION OF SHARES
The Trust's Agreement and Declaration of Trust ("Trust Agreement") permits
the Trust to issue an unlimited number of full and fractional units of
beneficial interest ("Shares") in one or more separate series. Only two series
are currently established, which are designated as the "Growth Fund" and the
"Income Fund." Each Share of a Fund of the Trust is without par value,
represents a proportionate interest in that Fund equal to the proportionate
interest represented by each other Share in that Fund, and is entitled to such
dividends and distributions as are declared by the Trustees. Upon liquidation
of a Fund, Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution. Shares do not have cumulative voting
rights nor any preemptive or conversion rights. Shares when issued as
described herein are fully paid and nonassessable, except as expressly set
forth below. Certificates representing the Shares are not issued. State Street
Bank and Trust Company, the Trust's Transfer Agent, maintains a record of each
Shareholder's ownership. Shareholders will receive confirmations of all
purchases and sales of Trust Shares made for his or her account including
reinvestment of dividends or other distributions.
SHAREHOLDER VOTING RIGHTS. As a general rule the Trust will not hold annual
or other meetings of Shareholders. Under the Trust Agreement, Shareholders are
entitled to vote in connection with the following matters: (1) for the
election or removal of Trustees if a meeting is called for such purpose; (2)
with respect to the adoption of any contract for which approval is required by
the Investment Company Act of 1940 (such as the Trust's Investment Advisory
and Management Agreement); (3) with respect to any termination of the Trust to
the extent and as provided in the Trust Agreement; (4) with respect to any
amendment of the Trust Agreement (other than amendments changing the name of
the Trust, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5) as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) with respect to such additional matters relating
to the Trust as may be required by law, the Trust Agreement, the By-Laws of
the Trust, any registration of the Trust with the Securities and Exchange
Commission or any state, or as the Trustees may consider necessary or
desirable. Each Trustee serves until the next meeting of Shareholders, if any,
and until the election and qualification of his or her successor or until such
Trustee sooner dies, resigns, retires or is removed by vote of at least two-
thirds of the Shares entitled to vote or a majority of the Trustees. Each
Share is entitled to one vote for each Trustee to be elected and one vote on
each other matter presented to Shareholders for a vote.
LOGO
<PAGE>
The Trust Agreement provides that on any matter submitted to a vote of the
Shareholders, all Shares entitled to vote, irrespective of Fund shall be voted
in the aggregate and not by Fund except if the Trustees have determined that
the matter affects only one Fund or as required by the Investment Company Act
of 1940. Thus, voting with respect to certain matters will be by Fund (such as
approval of the Investment Advisory and Management Agreement) and with respect
to other matters will be by all Shareholders without regard to Fund (such as
election of Trustees and the ratification of the selection of independent
auditors).
SHAREHOLDER LIABILITY. The Trust is organized as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable for the obligations of the
Trust. The Trust Agreement provides that Shareholders shall not be subject to
any personal liability to any person extending credit to, contracting with or
having any claims against the Trust and that every written agreement,
obligation, instrument or undertaking made by the Trust shall contain a
provision that the same is not binding upon the Shareholders personally. With
respect to other claims, a Shareholder may be held personally liable to the
extent that claims are not satisfied by the Trust. Upon payment of any such
liability, however, the Trust Agreement provides that Shareholders of a
particular Fund will be entitled to reimbursement from the general assets of
that Fund. The Trust is covered by insurance which the Trustees consider
adequate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote, since it is limited to circumstances in which the provisions limiting
liability are inoperative and the Trust itself is unable to meet its
obligations.
DETERMINATION OF NET ASSET VALUE
GROWTH AND INCOME FUNDS. The net asset value per Share for each Fund is
determined on each day the New York Stock Exchange is open for trading as of
the close of regular session trading on the Exchange (generally 3:00 p.m.,
Chicago time) and at 3:00 p.m. Chicago time on each other day during which
there is a sufficient degree of trading in securities of the particular Fund
so as to affect materially the net asset value of the Shares of such Fund. The
net asset value per Share for each Fund is computed by dividing the value of
the portfolio of securities of the particular Fund plus any other assets minus
all liabilities by the total number of such Fund's Shares outstanding.
Expenses, including the fees payable to the Investment Adviser and amounts
reimbursable to the Shareholder Service Agent, are accrued daily.
In valuing the Growth Fund's securities, each listed and unlisted security
for which last sale information is regularly reported is valued at the last
reported sale price on that day. If there has been no sale on such day, the
last reported sale price prior to that day is utilized if such sale price is
between the closing bid and asked prices of the current day. If such last
reported sale price is not between the current day's closing bid and asked
prices, then the value of such security is taken to be the mean between the
current day's bid and asked prices. In valuing the Income Fund's securities,
fixed income securities are valued by using market quotations, or independent
pricing services that use prices provided by market makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics.
Any unlisted security for which last sale information is not regularly
reported, any listed debt security which has an inactive listed market for
which over-the-counter market quotations are not readily available and all
other securities and assets are valued for each particular Fund by appraisal
at its fair value as determined in good faith under procedures established by
and under the general supervision and responsibility of the Board of Trustees.
Debt securities having a remaining maturity of less than 60 days are valued at
cost (or, if purchased more than 60 days prior to maturity, the value on the
61st day prior to maturity) adjusted for amortization of premiums and
accretion of discounts.
The Trust may suspend the determination of net asset value and the
processing of orders, the payment of redemption proceeds and postpone the date
of payment for redeemed Shares for more than seven days under the following
unusual circumstances: when the New York Stock Exchange is closed (other than
weekends and holidays) or trading is restricted; when an emergency exists as
determined by the Securities and Exchange Commission, making disposal of
portfolio securities or the valuation of net assets not reasonably
practicable; or during any period when the Securities and Exchange Commission
has by order permitted a suspension of redemption for the protection of
Shareholders.
LOGO
<PAGE>
IMPACT OF YEAR 2000
Similar to other mutual funds, financial and business organizations and
individuals around the world, the Trust could be adversely affected if the
computer systems used by the Investment Adviser and other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem". The
Investment Adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses
and to obtain reasonable assurances that comparable steps are being taken by
the Trust's other major service providers. At this time, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on
the Trust.
REPORTS TO SHAREHOLDERS
The Trust sends to its Shareholders various financial reports ("Reports")
such as unaudited semi-annual financial statements and fiscal year-end
financial statements audited by the Trust's independent auditors. To reduce
expenses, only one copy of most Reports may be mailed to all accounts with the
same social security or taxpayer identification number or to all Shareholders
in the same household. Shareholders may call or write Wayne Hummer to request
that copies of Reports be mailed to each account with a common taxpayer number
or to two or more Shareholders in the same household.
Additional information concerning performance results of the Trust is
contained in the Annual and Semi-Annual Reports which are available upon
request without cost from the Trust.
LOGO
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WAYNE HUMMER INVESTMENT TRUST
A NO-LOAD MUTUAL FUND
300 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
CHICAGO RESIDENTS CALL.........(312) 431-1700
TOLL FREE...................................(800) 621-4477
----------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT THE FUND'S PROSPECTUS. THIS
STATEMENT PROVIDES ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION
WITH THE FUND'S PROSPECTUS DATED JULY 31, 1998. THE PROSPECTUS MAY BE OBTAINED
AT NO CHARGE BY TELEPHONING WAYNE HUMMER INVESTMENTS L.L.C., THE FUND'S
DISTRIBUTOR AND SHAREHOLDER SERVICE AGENT, AT ONE OF THE ABOVE NUMBERS OR BY
WRITING TO THE ABOVE ADDRESS.
The date of this Statement of Additional Information is July 31, 1998
<PAGE>
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
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<S> <C>
BACKGROUND................................................................. B-1
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................... B-1
Growth Fund.............................................................. B-1
Income Fund.............................................................. B-1
MANAGEMENT OF THE TRUST.................................................... B-10
Trustees................................................................. B-10
Officers................................................................. B-10
INVESTMENT ADVISORY AND OTHER SERVICES..................................... B-11
Investment Adviser....................................................... B-11
Distributor and Shareholder Service Agent................................ B-14
BROKERAGE ALLOCATION....................................................... B-15
PERFORMANCE INFORMATION.................................................... B-16
SHAREHOLDER VOTING RIGHTS.................................................. B-17
Other Matters............................................................ B-18
SHAREHOLDER LIABILITY...................................................... B-18
Limitation of Liability.................................................. B-18
TRUST NAME................................................................. B-18
PURCHASE, REDEMPTION AND PRICING OF SHARES................................. B-19
Determination of Net Asset Value......................................... B-19
TAXES...................................................................... B-20
Federal Income Tax....................................................... B-20
Other Taxes.............................................................. B-20
INDEPENDENT AUDITORS....................................................... B-21
CUSTODIAN AND TRANSFER AND DIVIDEND PAYING AGENT........................... B-21
LEGAL COUNSEL.............................................................. B-21
REPORTS TO SHAREHOLDERS.................................................... B-21
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS.................... B-21
</TABLE>
i
<PAGE>
BACKGROUND
Wayne Hummer Investment Trust (the "Trust") is a no-load, diversified, open-
end management investment company the beneficial units ("Shares") of which are
offered in two funds. The Trust is organized as a Massachusetts business trust
pursuant to an Agreement and Declaration of Trust dated September 29, 1983
("Trust Agreement"). Shares of the Trust are distributed by Wayne Hummer
Investments L.L.C. ("Wayne Hummer" or the "Distributor" and "Shareholder
Service Agent")(1). Wayne Hummer Management Company (the "Investment Adviser")
is responsible for the management of the Trust's investment funds subject to
the review of the Trust's Board of Trustees. The Trust is intended to provide
its investors (referred to individually as "Shareholder" and collectively as
"Shareholders") with access to professional advice and portfolio management
resources that are normally beyond the reach of most individual investors. The
Trust Agreement provides that the Trust may issue Shares in one or more series
(referred to individually as "Fund" and collectively as "Funds"). Presently,
only two Funds are authorized--the "Growth Fund" and the "Income Fund." Shares
of the Growth Fund were first offered to the public on December 30, 1983 and
shares of the Income Fund on December 1, 1992. See "DESCRIPTION OF SHARES" in
the Trust's prospectus dated July 25, 1997 (the "Prospectus").
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
GROWTH FUND. As stated in the Prospectus, the Growth Fund's primary
investment objective is long-term capital growth. Current income is a
secondary objective. Investments generally will be made in companies which the
Growth Fund's investment adviser believes to have an ability to achieve the
Growth Fund's investment objectives. See "INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" in the Prospectus.
INCOME FUND. As stated in the Prospectus, the Income Fund's investment
objective is to maximize total return, including a competitive level of
current income, consistent with investing primarily in publicly-traded
investment grade securities. See "INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" in the Prospectus.
Each Fund of the Trust has adopted certain investment restrictions which,
together with the investment objectives and fundamental policies of such
Trust, cannot be changed without approval by holders of a majority of its
outstanding voting shares. As defined in the Investment Company Act of 1940,
this means the lesser of the vote of (a) 67% of the shares of the Fund at a
meeting where more than 50% of the outstanding shares are present or (b) more
than 50% of the outstanding shares of the Fund.
The following investment restrictions, which cannot be changed without
Shareholder approval, apply to each of the Funds except as indicated to the
contrary.
The Fund may not:
(1) Invest in the securities of an issuer, if immediately after and as a
result of such investment, the Fund owns more than 10% of the outstanding
securities, or more than 10% of the outstanding voting securities, of such
issuer.
- --------
(1) Prior to April 1, 1996, Wayne Hummer & Co. was the Trust's Distributor and
Shareholder Service Agent. Effective as of April 1, 1996, Wayne Hummer &
Co., which was organized as an Illinois limited partnership, was
reorganized as a Delaware limited liability company and is now known as
Wayne Hummer Investments L.L.C. Each of the general partners of Wayne
Hummer & Co. became voting members of Wayne Hummer Investments L.L.C.
B-1
<PAGE>
(2) Concentrate its investments in any particular industry; provided that
if it is deemed appropriate for the attainment of the Fund's investment
objectives, up to 25% of its total assets may be invested in any one
industry.
(3) Make investments for the purpose of exercising control or management.
(4) Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter no more than 10% of the Fund's total assets would be invested in
such securities.
(5) Purchase or sell real estate, commodities or commodity contracts,
except that the Income Fund may enter into options on financial futures
contracts.
(6) Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, except with respect to the Income Fund
which may make margin deposits in connection with transactions on options,
futures and options on futures.
(7) Make short sales of securities or maintain a short position.
(8) Make loans to other persons; provided that the Fund may use
repurchase agreements, and provided further that the acquisition of bonds,
debentures, or other corporate debt securities and investment in government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances, variable rate notes or other money market instruments that are
a portion of an issue to the public shall not be deemed to be the making of
a loan and provided further that the Fund may lend its portfolio securities
as set forth in paragraph (9) below.
(9) Lend its portfolio securities in excess of 20% of its total assets;
provided that such loans may be made only to New York Stock Exchange member
firms, other brokerage firms having net capital of at least $10 million and
financial institutions, such as registered investment companies, banks and
insurance companies, having at least $10 million in capital and surplus,
and provided further that such loans shall be in accordance with guidelines
established by the Securities and Exchange Commission for such loans and by
the Board of Trustees of the Trust including maintaining collateral from
borrowers at least equal at all times to the current value of the
securities loaned.(2)
(10) Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in paragraph (9) above), as security for indebtedness, any
securities owned or held by the Fund except as may be necessary in
connection with borrowings mentioned in paragraphs (15) and (16) above, and
then such mortgaging, pledging or hypothecating may not exceed 15% of the
Fund's total assets.
(11) Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended, in selling portfolio securities.
(12) (Growth Fund only) Invest in securities for which there are legal or
contractual restrictions on resale or for which there is no readily
available market, if at the time of acquisition more than 5% of its total
assets would be invested in such securities.
(13) Invest in the securities of any one issuer (other than the United
States, its agencies or instrumentalities), if immediately after and as a
result of such investment, more than 5% of the Fund's total assets would be
invested in the securities of such issuer.
- --------
(2) Neither Fund has in the past engaged in the practices of lending its
portfolio securities as permitted under paragraph (9) or borrowing amounts
as permitted under paragraphs (15) and (16) and neither Fund has a present
intention to do so. Shareholders will be notified of any changes in these
practices.
B-2
<PAGE>
(14) Issue any senior securities except to the extent permitted under the
Investment Company Act of 1940.
(15) (Growth Fund only) Borrow amounts aggregating more than 5% of its
total assets and then only from banks as a temporary measure for
extraordinary or emergency purposes.
(16) (Income Fund only) Borrow amounts aggregating more than 10% of its
total assets and then only from banks as a temporary measure for
extraordinary or emergency purposes.
The following additional investment restrictions, which may be changed by
the Board of Trustees without Shareholder approval, apply to each of the Funds
except as indicated to the contrary.
The Fund may not:
(17) Purchase or sell interests in oil, gas or other mineral exploration
or development programs.
(18) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may purchase put and call
options, including put and call options on stock indices, to the extent
permitted under paragraph (22) below, and may write covered call options on
individual portfolio securities.
(19) Invest in securities of foreign issuers if at the time of
acquisition more than 10% of its total assets would be invested in such
securities.(3)
(20) Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation if at the
time of acquisition more than 5% of its total assets would be invested in
such securities.(3)
(21) Purchase or retain the securities of any issuer, if those officers,
trustees and directors of the Fund, its Investment Adviser or any parent or
subsidiary thereof, each owning beneficially more than 1/2 of 1% of the
securities of such issuer, own in the aggregate more than 5% of the
securities of such issuer.
(22) Purchase put and call options, including put and call options on
stock indices, if the total cost of all such options held by the Fund would
exceed 5% of the value of the Fund's net assets considered each time such
an option is acquired.
(23) (Growth Fund only) Invest in warrants if at the time of acquisition
more than 2% of its total assets would be invested in warrants. For
purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.(4)
(24) (Income Fund only) Invest in financial futures contracts and options
on financial futures contracts, unless the aggregate of the contract value
of the outstanding futures contracts and futures contracts subject to
outstanding options written by the Income Fund does not exceed 50% of the
total assets of the Income Fund.
(25) (Income Fund only) Invest more than 15% of its net assets in
illiquid securities, including repurchase agreements maturing in more than
seven days.
- --------
(3) Although permitted to a limited extent under paragraphs (19) and (20),
respectively, neither Fund has in the past invested in foreign securities
not publicly traded in the United States or in securities of companies
having a record of less than three years of continuous operations. Neither
Fund has the present intention to begin using these investment practices.
Shareholders will be notified of any change in this intention.
(4) Although permitted to a limited extent under paragraph (23), the Growth
Fund has not in the past invested in warrants. The Growth Fund has no
present intention to begin using this investment practice. Shareholders
will be notified of any change in this intention.
B-3
<PAGE>
If any applicable percentage limitations contained in the foregoing
investment restrictions is satisfied at the time the securities subject
thereto are purchased, the Fund will not be required to dispose of such
securities in the event that the percentage restriction is subsequently
exceeded due to a fluctuation in the value of such securities or other
securities of the portfolio or a fluctuation in the number of outstanding
securities of the issuer. Notwithstanding the foregoing, if the percentage
restrictions contained in paragraph (9) or in paragraphs (15) and (16) are
violated due to a subsequent fluctuation in portfolio value, the Fund shall be
entitled, as a condition which shall be a part of all loans subject to
paragraph (9) and all borrowings subject to paragraphs (15) and (16), to
reduce within three business days the outstanding amount of such loans or
borrowings in order once again to satisfy such percentage restriction.
The following discussion applies to each of the Funds except as indicated to
the contrary.
LENDING OF FUND SECURITIES
In connection with any loan of portfolio securities made by either of the
Funds as permitted under paragraph (9), certain conditions must be met: (i)
the collateral to be received from the borrower will be invested in short-term
securities, the income from which will increase the return to the Fund; (ii)
the Fund will retain rights of beneficial ownership as to the loaned portfolio
securities, including voting rights and rights to dividends, interest or other
distributions, and will have the right to regain record ownership of loaned
securities to exercise such beneficial rights; (iii) such loans will be
terminable within three business days; and (iv) upon termination of the loan,
the Fund will receive securities that are of the same class and issue as those
loaned. In the event that the borrower of loaned portfolio securities fails
financially, the Fund might experience a delay in recovery, incur expenses in
enforcing its rights and experience losses, including a substitution of
securities and loss of income. The Fund may pay reasonable fees to persons not
affiliated, as defined in the Investment Company Act of 1940, with the Fund in
connection with the arranging of such loans.
OPTIONS ON SECURITIES
As discussed in the Prospectus, each Fund may engage in options transactions
in accordance with its investment objectives and policies. The Fund may
purchase put and call options to the extent permitted under paragraph (22)
above and may write covered call options on individual portfolio securities
having an aggregate market value of up to 25% of the net assets of the Fund.
The Fund may enter into closing transactions, exercise its options or permit
them to expire. Each of the Funds intend to engage in such transactions at
times when it appears advantageous to its investment adviser to do so in order
to hedge against the effects of market conditions and to protect the value of
its assets. Neither Fund currently engages in or currently plans to engage in
the practice of writing covered call options.
A put option gives the holder (buyer) the "right to sell" a security at a
specified price (the exercise price) at any time until a certain date (the
expiration date). In effect, the buyer of a put option who also owns the
related stock is protected by ownership of a put option against any decline in
that security's price below the exercise price less the amount paid for the
option. The ability to purchase put options allows the Fund to protect capital
gains in an appreciated security it owns, without being required to sell that
security. If the market price of the related investment is above the exercise
price and, as a result, the put is not exercised or sold, the put will become
worthless at its expiration date. A call option gives the holder (buyer) the
"right to purchase" a security at a specified price (the exercise price) at
B-4
<PAGE>
any time until a certain date (the expiration date). At times the Fund may
wish to establish a position in securities upon which call options are
available. By purchasing a call option the Fund is able to fix the cost of
acquiring the stock at the cost of the call option plus the exercise price of
the option. The Fund will benefit only if the market price of the related
investments is above the call price plus the premium during the exercise
period and the call is either exercised or sold at a profit. This procedure
also provides some protection from an unexpected downturn in the market
because the Fund would be at risk only for the amount of the premium paid for
the call option which the Trust's investment adviser may, if it chooses,
permit to expire.
When the Fund writes (sells) a covered call option, it will receive a
premium from the buyer of the option and will be obligated to sell the related
securities at the specified price if the option is exercised before the
expiration date. A call option is considered "covered" when the writer
(seller), in this case the Fund, already owns the underlying securities. In
determining whether a covered call option will be written on one of its
securities, the investment adviser will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will
exist for the option. The Fund does not consider a security covered by a call
to be "pledged" as that term is used in paragraph (10) above limiting the
pledging or mortgaging of its assets. If an option written (sold) by the Fund
is not exercised, the Fund will profit from the premium received and, in the
event of a decline in the market value of the related securities, will be able
to offset depreciation in such securities to the extent of the premium
received. While holding securities during the term of a related option written
by the Fund, the Fund may be exposed to possible decreases in the value of
such securities that may otherwise have been avoided if the securities had
been sold. In the event the market value of the related securities increases
and the holder does exercise the call option, the Fund will recognize capital
appreciation in the related securities only to the extent of the exercise
price plus the amount of premium paid and may forfeit an opportunity to
realize profit from any increase in the value of the underlying security above
the exercise price plus the premium.
As part of its options transactions, each of the Funds may also purchase
index options. Through the purchase of index options the Fund can achieve many
of the same objectives as through the purchase of options on individual
securities. Options on securities indices are similar to options on a security
except that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of an option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. The value of a stock index option will generally vary directly in the
case of a call, and inversely in the case of a put, with movements in the
underlying index, and the percentage fluctuations in the value of an option
may be many times greater than those of the underlying index. The adviser may
purchase call index options as a hedge against a general increase in the price
of securities in connection with either sales of portfolio securities or
deferrals of purchases of securities it may desire to purchase at a later
date. Put index options may be purchased as a hedge against a general decline
in the value of securities rather than selling portfolio securities. Any
protection provided by stock index options is effective only against changes
in the level of a stock index and not necessarily against a change in the
value of individual securities. Thus, the effectiveness of the use of stock
index options as a hedge is dependent on the extent to which price movements
of individual securities which are being hedged correlate with price movements
in the underlying stock index. Unless a stock index option can be sold or
exercised at a profit prior to expiration, the Fund will forfeit its entire
investment in the option, often in a relatively short period of time. Any
profit that may be realized from the sale or exercise of stock index options
will be reduced by related transaction costs.
FINANCIAL FUTURES CONTRACTS
The Income Fund may enter into financial futures contracts for the future
delivery of a financial instrument, such as a security, or the cash value of a
securities index. This investment technique is
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designed primarily to hedge (i.e., protect) against anticipated future changes
in interest rates or equity market conditions which otherwise might affect
adversely the value of securities which the Income Fund holds or intends to
purchase. A "sale" of a futures contract means the undertaking of a
contractual obligation to deliver the securities or the cash value of an index
called for by the contract at a specified price during a specified delivery
period. A "purchase" of a futures contract means the undertaking of a
contractual obligation to acquire the securities or cash value of an index at
a specified price during a specified delivery period. At the time of delivery,
in the case of fixed income securities pursuant to the contract, adjustments
are made to recognize differences in value arising from the delivery of
securities with a different interest rate than that specified in the contract.
In some cases, securities called for by a futures contract may not have been
issued at the time the contract was written. The Income Fund will not enter
into any futures contracts or options on futures contracts if the aggregate of
the contract value of the outstanding futures contracts of the Income Fund and
futures contracts subject to outstanding options written by the Income Fund
would exceed 50% of the total assets of the Income Fund.
Although some futures contracts by their terms call for the actual delivery
or acquisition of securities, in most cases a party will close out the
contractual commitment before delivery without having to make or take delivery
of the security by purchasing (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the securities. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded.
The Income Fund will incur brokerage fees when it purchases or sells
contracts, and will be required to maintain margin deposits. At the time the
Income Fund enters into a futures contract, it is required to deposit with its
custodian, on behalf of the broker, a specified amount of cash or eligible
securities, called "initial margin." The initial margin required for a futures
contract is set by the exchange on which the contract is traded. Subsequent
payments, called "variation margin," to and from the broker are made on a
daily basis as the market price of the futures contract fluctuates. The costs
incurred in connection with futures transactions could reduce the Income
Fund's return. Futures contracts entail risks. If the investment adviser's
judgment about the general direction of interest rates or markets is wrong,
the overall performance may be poorer than if no such contracts had been
entered into by the Fund.
There may be an imperfect correlation between movements in prices of futures
contracts and portfolio securities being hedged. In addition, the market
prices of futures contracts may be affected by certain factors. If
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet margin requirements, distortions in
the normal relationship between the securities and futures markets could
result. Price distortions could also result if investors in futures contracts
decide to make or take delivery of underlying securities rather than engage in
closing transactions because of the resultant reduction in the liquidity of
the futures market. In addition, because, from the point of view of
speculators, the margin requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of
the imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of market
trends by the investment adviser may still not result in a successful hedging
transaction. If any of these events should occur, the Income Fund could lose
money on the financial futures contracts and also on the value of its
portfolio securities.
OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Income Fund may purchase and write call and put options on financial
futures contracts. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a
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position in a futures contract at a specified exercise price at any time
during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Income
Fund would be required to deposit with its custodian initial margin and
maintenance margin with respect to put and call options on futures contracts
written by it. Options on futures contracts involve risks similar to those
risks relating to transactions in financial futures contracts described above.
Also, an option purchased by the Income Fund may expire worthless, in which
case the Income Fund would lose the premium paid therefor.
REPURCHASE AGREEMENTS
The Income Fund may invest in repurchase agreements, under which it acquires
ownership of a security and the broker-dealer or bank agrees to repurchase the
security at a mutually agreed upon time and price, thereby determining the
yield during the Income Fund's holding period. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Income Fund might
have expenses in enforcing its rights, and could experience losses, including
a decline in the value of the underlying securities and loss of income. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon. In addition, the Income Fund must take physical possession of the
security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through the Federal Reserve Book-Entry System. Repurchase agreements
will be limited to transactions with financial institutions believed by the
investment adviser to present minimal credit risk. The Trust's investment
adviser will monitor on an on-going basis the creditworthiness of the broker-
dealers and banks with which the Income Fund may engage in repurchase
agreements. Repurchase agreements maturing in more than seven days will be
considered as illiquid for purposes of the Income Fund's 15% limitation in
illiquid securities.
DELAYED DELIVERY TRANSACTIONS
The Income Fund may purchase or sell portfolio securities on a when-issued
or delayed delivery basis. When-issued or delayed delivery transactions
involve a commitment by the Income Fund to purchase or sell securities with
payment and delivery to take place in the future in order to secure what is
considered to be an advantageous price or yield to the Income Fund at the time
of entering into the transaction. When the Income Fund enters into a delayed
delivery transaction, it becomes obligated to purchase securities and it has
all of the rights and risks attendant to ownership of a security, although
delivery and payment occur at a later date. The value of fixed income
securities to be delivered in the future will fluctuate as interest rates
vary. At the time the Income Fund makes the commitment to purchase a security
on a when-issued or delayed delivery basis, it will record the transaction and
reflect the liability for the purchase and the value of the security in
determining its net asset value. Likewise, at the time the Income Fund makes
the commitment to sell a security on a delayed delivery basis, it will record
the transaction and include the proceeds to be received in determining its net
asset value; accordingly, any fluctuations in the value of the security sold
pursuant to a delayed delivery commitment are ignored in calculating net asset
value so long as the commitment remains in effect. The Income Fund generally
has the ability to close out a purchase obligation on or before the settlement
date, rather than take delivery of the security.
To the extent the Income Fund engages in when-issued or delayed delivery
purchases, it will do so for the purpose of acquiring portfolio securities
consistent with its investment objectives and policies and not for the purpose
of investment leverage or to speculate in interest rate changes. The Income
Fund will only make commitments to purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the
securities, but it reserves the right to sell these securities before the
settlement date if deemed advisable.
COLLATERALIZED MORTGAGE OBLIGATIONS
As described in the Prospectus, the Income Fund may purchase or sell
collateralized mortgage obligations ("CMOs"). CMOs are obligations fully
collateralized by a portfolio of mortgages or
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mortgage-related securities. Payments of principal and interest on the
mortgages are passed through to the holders of the CMOs on the same schedule
as they are received, although certain classes of CMOs have priority over
others with respect to the receipt of prepayments on the mortgages. Therefore,
depending on the type of CMOs in which the Income Fund invests, the investment
may be subject to a greater or lesser risk of prepayment than other types of
mortgage-related securities. The issuer of a series of CMOs may elect to be
treated as a Real Estate Mortgage Investment Conduit (a "REMIC"), which has
certain special tax attributes.
MORTGAGE-BACKED SECURITIES
As discussed in the Prospectus, the Income Fund may invest in mortgage-
backed securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Mortgage-backed securities are securities representing
interests in a pool of mortgages. Principal and interest payments made on the
mortgages in the underlying mortgage pool are passed through to the Income
Fund. Unscheduled prepayments of principal shorten the securities' weighted
average life and may lower total return. (When a mortgage in the underlying
mortgage pool is prepaid, an unscheduled principal prepayment is passed
through to the Income Fund. This principal is returned to the Income Fund at
par. As a result, if a mortgage security was trading at a premium, its total
return would be lowered by prepayments, and if a mortgage security were
trading at a discount, its total return would be increased by prepayments).
The value of these securities also may change because of changes in the
market's perception of the creditworthiness of the federal agency that issued
them. In addition, the mortgage securities market in general may be adversely
affected by changes in governmental regulation or tax policies.
The Income Fund may also invest in the securities of certain supranational
entities, such as the International Development Bank.
ASSET-BACKED SECURITIES
As described in the Prospectus, the Income Fund may purchase or sell debt
obligations known as asset-backed securities. Asset-backed securities are
securities which represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets, most often a pool
or pools of similar assets (e.g., trade receivables). The credit quality of
most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the
anticipated yield to maturity. Asset-backed securities may be classified
either as pass-through certificates or collateralized obligations.
Pass-through certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets. Pass-
through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because pass-
through certificates represent an ownership interest in the underlying assets,
the holders thereof bear directly the risk of any defaults by the obligors on
the underlying assets not covered by any credit support.
Asset-backed securities issued in the form of debt instruments, also known
as collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card or automobile
receivables. The assets collateralizing such asset-backed securities are
pledged to a
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trustee or custodian for the benefit of the holders thereof. Such issuers
generally hold no assets other than those underlying the asset-backed
securities and any credit support provided. As a result, although payments on
such asset-backed securities are obligations of the issuers, in the event of
defaults on the underlying assets not covered by any credit support, the
issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related asset-backed securities.
TIME DEPOSITS, CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
The Income Fund may invest in time deposits ("TDs"), certificates of
deposits ("CDs") and bankers' acceptances. TDs are non-negotiable deposits
maintained in a banking institution for a specified period of time (in no
event longer than seven days) at a stated interest rate. CDs are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time. TDs maturing in more than seven days will not be
purchased by the Income Fund and TDs maturing from two business through seven
calendar days will not exceed 10% of the Income Fund's total assets.
Investments in TDs generally are limited to domestic banks having total assets
in excess of one billion U.S. dollars or to foreign branches of such domestic
banks, and investments in CDs and bankers' acceptances are limited to domestic
or Canadian banks having total assets in excess of one billion dollars. CDs
issued by domestic branches of domestic banks do not benefit materially, and
TDs issued by foreign branches of domestic banks do not benefit at all, from
insurance from the Bank Insurance Fund or the Savings Association Insurance
Fund administered by the Federal Deposit Insurance Corporation ("FDIC").
Both domestic banks and foreign branches of domestic banks are subject to
extensive but different governmental regulations which may limit both the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry is dependent
largely upon the availability and cost of funds for the purpose of financing
lending operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operations
of this industry.
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to have their deposits insured by the FDIC.
Domestic banks organized under state law are supervised and examined by state
banking authorities. In addition, state banks whose CDs may be purchased by
the Income Fund are insured by the FDIC (although such insurance may not be of
material benefit to the Income Fund, depending upon the principal amount of
the CDs of each bank held by the Income Fund) and are subject to Federal
examination and to a substantial body of Federal law and regulation.
As a result of the foregoing Federal and state laws and regulations,
domestic banks, among other things, are required to maintain specified levels
of reserves, limited in amounts which they can loan a single borrower, and
subject to other regulations designed to promote financial soundness. However,
not all such laws and regulations apply to foreign branches of domestic banks.
RATING OF SECURITIES
The Income Fund may invest in securities that are given ratings by Moody's
and S&P. After purchase by the Income Fund, such a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Income Fund. Neither event will require a sale of such security by the
Income Fund. However, the Adviser will consider such event in its
determination of whether the Income Fund should continue to hold the security.
To the extent that the ratings given by Moody's and S&P may change as a result
of changes in such organizations or their rating systems, the Income Fund will
attempt to use comparable ratings as standards for investments in accordance
with the investment policies contained in the prospectus.
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MANAGEMENT OF THE TRUST
The Trustees and executive officers of the Trust, their ages and their
principal occupations are set forth below. Unless otherwise noted, the address
of each of the following persons is 300 South Wacker Drive, Chicago, Illinois
60606.
TRUSTEES
STEVEN R. BECKER (47), Member, Wayne Hummer and prior to April 1, 1996,
Partner, Wayne Hummer & Co.; Director and Former Vice President, Wayne Hummer
Management Company.*(5)
PHILIP M. BURNO (66), Chairman, Board of Trustees of the Trust; Member,
Wayne, Wayne Hummer and prior to April 1, 1996, Partner, Wayne Hummer & Co.,
Director, Wayne Hummer Management.*(5)
CHARLES V. DOHERTY (64), 3 First National Plaza, Suite 1400, Chicago,
Illinois 60602; Director, Lakeside Bank, Chicago, Illinois (Illinois State
Chartered Bank); Managing Director, Madison Asset Group, Chicago, Illinois
(Registered Investment Adviser); President and Director, Doherty Zable & Co.
(Certified Public Accountants); September 1, 1989 to December 31, 1992,
President and Chief Operating Officer, Midwest Stock Exchange (now, Chicago
Stock Exchange).(5)
JOEL D. GINGISS (55), 207 Hazel, Highland Park, Illinois 60035; Assistant
States Attorney, Lake County, Illinois September, 1993 to Present; Former
Chairman of the Board of Directors and President, Gingiss International, Inc.
(franchisor of Gingiss Formalwear Stores); Past President, International
Franchise Association.(5)
PATRICK B. LONG (55), 101 North Main Street, Ann Arbor, Michigan 48104;
Chairman and Chief Executive Officer, KMS Industries, Inc. (fusion energy
research).
EUSTACE K. SHAW (73), 200 First Avenue E., Newton, Iowa 50208; President, B.
F. Shaw Printing Co.; Chairman of the Board of Directors, B. F. Shaw Printing
Co.; Former Publisher, Newton Daily News.
The Trustees serve in similar capacities with the Wayne Hummer Money Fund
Trust.
OFFICERS
THOMAS J. ROWLAND (52), President of the Trust; Vice President, Wayne Hummer
Money Fund Trust and President, Wayne Hummer Management Company (formerly Vice
President of the Trust and Wayne Hummer Management Company); Member, Wayne
Hummer and prior to April 1, 1996, Partner, Wayne Hummer & Co.;
DAVID P. POITRAS (37), Vice President of the Trust; President, Wayne Hummer
Money Fund Trust since 1993; Vice President, Wayne Hummer Management Company
since May, 1992; Member,
- --------
* Interested person, as defined in the Investment Company Act of 1940, of the
Fund, the Investment Adviser and/or the Distributor.
(5)Member of the Executive Committee of the Trust. The Executive Committee is
elected by the Board of Trustees and is composed of four Trustees, two of whom
are interested persons as defined in the Investment Company Act of 1940. The
Executive Committee is authorized to exercise such powers and authority of the
Board of Trustees, as the Board of Trustees may determine, when the Board of
Trustees is not in session and as are consistent with law.
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Wayne Hummer and prior to April 1, 1996, Partner, Wayne Hummer & Co., since
January, 1992 and Bond Department Manager, Wayne Hummer.
JEAN M. MAURICE (35), Secretary and Treasurer of the Trust and Treasurer,
Wayne Hummer Money Fund Trust since March, 1988; Administrative Assistant for
the Trust and Wayne Hummer Money Fund Trust, prior thereto.
Wayne Hummer Management Company, the Investment Adviser, pays all
compensation of the officers of the Trust and the compensation of all Trustees
of the Trust who are interested persons, as defined in the Investment Company
Act of 1940, of the Trust. The Trust pays each Trustee who is not an
interested person of the Trust $2,000 per year, plus $500 and expenses for
each Board and committee meeting attended.
The following table sets forth the compensation received by all trustees of
the Trust for the fiscal year ended March 31, 1998. The information in the
last column of the table sets forth the total compensation received by all
trustees for calendar year 1997 for service as a trustee of the Trust and the
Wayne Hummer Money Fund Trust.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS TOTAL
AGGREGATE ACQUIRED COMPENSATION
COMPENSATION AS PART OF HUMMER FUNDS
FROM THE TRUST PAID TO
TRUSTEE TRUST EXPENSES TRUSTEES
------- ------------ ---------- ------------
<S> <C> <C> <C>
Steven R. Becker..................... $ 0 $ 0 $ 0
Philip M. Burno...................... 0 0 0
Charles V. Doherty................... 5,000 0 10,500
Joel D. Gingiss...................... 5,500 0 11,500
Patrick B. Long...................... 4,500 0 10,000
Eustace K. Shaw...................... 4,500 0 10,000
</TABLE>
As of June 30, 1998, the Trustees and officers as a group beneficially owned
less than 1% of the outstanding Shares of the Trust. As of June 30, 1998, the
Wayne Hummer Employees Profit Sharing Trust (the "Retirement Plan") owned of
record and beneficially 4.0% and 3.4%, respectively, of the outstanding Shares
of the Growth Fund and the Income Fund, being 3.9% of the aggregate
outstanding Shares of the Trust. Messrs. Rowland, Cannova, Reilly, Kratzer and
Poitras, as trustees of the Retirement Plan may be deemed to hold beneficial
ownership of the percentage of Shares of the Funds and the Trust as stated
above. Messrs. Rowland, Kratzer and Poitras are also Members of Wayne Hummer,
the Trust's Distributor. Messrs. Poitras and Rowland also are officers of the
Trust and Wayne Hummer Management Company, the Trust's Investment Adviser.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Wayne Hummer Management Company (the "Investment Adviser"), 300 South Wacker
Drive, Chicago, Illinois 60606, acts as investment adviser to the Trust and
provides the Trust with operating facilities and management services under the
terms of an Investment Advisory and Management Agreement. The Investment
Adviser was organized on November 30, 1981, and also serves as investment
adviser to the Wayne Hummer Money Fund Trust, a diversified open-end
investment company.
The shareholders of the Investment Adviser are the voting members of Wayne
Hummer, a Delaware limited liability company, who own shares in proportion to
their percentage of voting
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membership interest. Wayne Hummer, a registered broker-dealer firm, acts as
the Trust's Distributor and Shareholder Service Agent.
As noted in the preceding discussion of Trustees and officers, certain of
the members of Wayne Hummer are also officers, directors or employees of the
Investment Adviser, as well as officers and interested persons, as defined in
the Investment Company Act of 1940, of the Trust. Moreover, Wayne Hummer may
be deemed an affiliated person of the Investment Adviser and the Trust.
Subject to the review of the Board of Trustees, the Investment Adviser is
responsible for the management of the Trust and reviews the portfolio holdings
of each of the Funds in light of its own research analysis and information
from other relevant sources.
The investment decisions for the Funds are reached independently from one
another and from those for Wayne Hummer Money Fund Trust ("WHMFT"), the other
investment company managed by the Investment Adviser. WHMFT may, however, make
investments in money market instruments at the same time as one or both of the
Funds. When one or both Funds and WHMFT have funds available for investment in
or wish to sell money market instruments, the Investment Adviser, to the
extent permitted by applicable laws and regulations, may aggregate the
securities to be purchased or sold in order to obtain the best combination of
price and execution. In such event, allocation of the securities so purchased
or sold, as well as the costs incurred in the transaction, will be made by the
Investment Adviser in a manner it considers to be equitable and consistent
with its fiduciary obligations to WHMFT and the Trust. In some cases this
procedure may affect the size or price of the position obtainable for the
Trust. It is the opinion of the Board of Trustees that the benefits available
outweigh any disadvantages that may arise from concurrent transactions.
The executive officers and directors of the Investment Adviser are as
follows:
Harry Flagg Baum, Director; Steven R. Becker, Director; G. Ted Becker,
Treasurer; Philip M. Burno, Director; Philip Wayne Hummer, Director and
Chairman, David P. Poitras, Vice President; William A. Rogers, Director and
Secretary; Thomas J. Rowland, President; Mark H. Dierkes, Vice President;
and Damaris E. Martinez, Vice President, Administration.
The Investment Adviser is obligated, among other things: to provide
investment advisory and portfolio management services; to furnish
administrative services, office space and basic facilities for management of
the Trust's affairs (other than distribution of the Trust's Shares and the
furnishing of Shareholder services); and to pay the compensation of all
officers and other personnel of the Trust for their services to the Trust as
well as the compensation of the Trustees of the Trust who are interested
persons, as defined in the Investment Company Act of 1940, of the Trust. The
Trust pays all other expenses incurred in the operation of the Trust
including, among other things: brokerage commissions and other transaction
costs in connection with the purchase or sale of portfolio securities; taxes;
expenses for legal, auditing and accounting services; costs of preparing,
typesetting, printing and mailing prospectuses, Shareholder reports, proxy
materials (pertaining to solicitations by the Trust or its Board of Trustees)
and notices to Shareholders of the Trust; costs of preparing and filing
reports with regulatory agencies; charges of the Custodian, Transfer Agent and
Distributor and Shareholder Service Agent; premiums for insurance carried by
the Trust pursuant to the requirements of Section 17(g) of the Investment
Company Act of 1940 or otherwise required by law or deemed desirable by the
Board of Trustees; expenses related to the computation of daily net asset
value; expenses related to the issuance or redemption of Shares; expenses of
registering, qualifying and maintaining registration and qualification of the
Trust or its Shares under federal, state and other laws; fees and out-of-
pocket expenses of Trustees who are not interested persons, as defined in the
Investment Company Act of 1940, of the Trust; expenses incident to holding
meetings of the Trust's Shareholders, including proxy solicitations of the
Trust or its Board of Trustees therefor, as well as expenses incident to
holding meetings of the Board of Trustees and committees of the Board of
Trustees; interest expenses; costs incident to generating and mailing
confirmations and periodic statements to
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Shareholders; fees and expenses incurred in connection with any investment
company organization or trade association of which the Trust may be a member;
and other expenses properly payable by the Trust. Certain of these expenses
may be advanced on behalf of the Trust by the Investment Adviser or the
Shareholder Service Agent and will be reimbursed to such party by the Trust.
Under the Investment Advisory and Management Agreement in effect since
August 1, 1988, as amended, the Investment Adviser receives as compensation
for its services to the Growth Fund an annual fee equal to .80 of 1% of the
average daily net assets of the Growth Fund up to $100 million, plus .65 of 1%
of the next $150 million of average daily net assets, plus .50 of 1% of
average daily net assets in excess of $250 million. Such fees are computed and
accrued daily and payable monthly. For the Income Fund, the Investment Adviser
receives an annual fee of .50 of 1% of the average daily net assets up to $100
million, plus .40 of 1% of the next $150 million of average daily net assets,
plus .30 of 1% of average daily net assets in excess of $250 million. The
advisory fee provided for in the Advisory Agreement is similar to that of
comparably sized funds with similar investment objectives and policies but is
higher than fees paid by most other mutual funds with different investment
objectives, such as money market funds. For the fiscal years ended March 31,
1998, 1997 and 1996, the total advisory fees incurred by the Growth Fund were
$950,496, $817,835 and $785,739, respectively. For the fiscal years ended
March 31, 1998, 1997 and 1996, the total advisory fees incurred by the Income
Fund were $110,478, $119,230 and $131,344, respectively.
The Investment Adviser has agreed to waive its fee to the extent that a
Fund's ordinary operating expenses during any fiscal year, including the fee
of the Investment Adviser, exceed 1.5% of the average daily net assets of the
Fund. Expenses that are not subject to this limitation are interest, taxes,
brokerage commissions and extraordinary items such as litigation costs. For
the fiscal years ended March 31, 1998, 1997 and 1996, the Investment Adviser
was not required to reimburse the Trust for any expenses in excess of any
applicable expense limitation or to waive its fees.
The Investment Advisory and Management Agreement (as amended) was approved
(i) at the May 1, 1998 meeting of the Board of Trustees by a majority of the
Trustees who are neither parties to the Agreement nor interested persons, as
defined in the Investment Company Act of 1940, of any such party, and (ii) by
a majority of the Growth Fund's outstanding shares at a special meeting of
Shareholders held on July 19, 1988. An Amendment to the Investment Advisory
and Management Agreement by which the Investment Adviser agreed to render
services to the Income Fund was approved (i) at the November 24, 1992 meeting
of the Board of Trustees by a majority of the Trustees who are neither parties
to the Agreement nor interested persons, as defined in the Investment Company
Act of 1940, of any such party, and (ii) by a majority of the Income Fund's
outstanding shares by written consent on December 1, 1992. Unless earlier
terminated as described below, the Investment Advisory and Management
Agreement, as amended, will continue in effect until July 31, 1999, and
thereafter if approved annually (i) by the Board of Trustees of the Trust or
by a majority of the outstanding Shares of the Trust (as defined under
"SHAREHOLDER VOTING RIGHTS") and (ii) by a majority of Trustees who are not
parties to such Agreement or interested persons, as defined in the Investment
Company Act of 1940, of any such party. The Agreement is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the Shareholders.
The Investment Adviser also provides the Trust with certain portfolio
accounting services under the terms of a Portfolio Accounting Services
Agreement (the "Accounting Agreement"). The Investment Adviser maintains the
accounting books and records pertaining to each Fund that constitute the
record forming the basis for financial statements of the Funds; maintains
capital stock
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accounts for each Fund; prepares a daily trial balance for each Fund;
calculates the net asset value of each Fund; maintains all records of a
financial nature to each Fund's transactions; and processes special ledgers
and other reports when requested.
Under the Accounting Agreement in effect since November 1, 1994, the
Investment Adviser receives as compensation for its accounting services to the
Trust, an annual fee which is computed and accrued daily and payable monthly.
The Investment Adviser receives an annual fee of .01 of 1% of average daily
net assets; but such fee shall not exceed $15,000 per Fund per annum. In
addition, the Investment Adviser receives an equipment fee of $50 per Fund per
month and is reimbursed for its out-of-pocket costs for obtaining securities
pricing services, the license for use of portfolio accounting software, and
other out-of-pocket costs which are incurred in providing the pricing and
software services. For the fiscal years ended March 31, 1998, 1997 and 1996,
the total portfolio accounting services fees incurred by the Growth Fund were
$19,640, $17,043 and $12,099, respectively. For the fiscal years ended March
31, 1998, 1997 and 1996, the total portfolio accounting services fees incurred
by the Income Fund were $18,709, $19,543 and $19,588, respectively.
The Accounting Agreement was approved at the October 25, 1994 meeting of the
Board of Trustees by a majority of the Trustees who are neither parties to the
Accounting Agreement nor interested persons, as defined in the Investment
Company Act of 1940, of any such party. The Accounting Agreement shall
continue in effect until terminated. The Accounting Agreement may be
terminated by either party upon sixty days' prior written notice; provided,
however, that the Trust may terminate the Accounting Agreement without prior
notice in order to preserve the integrity of its records from material and
continuing errors and omissions on the part of the Investment Adviser.
DISTRIBUTOR AND SHAREHOLDER SERVICE AGENT
Wayne Hummer, with offices at 300 South Wacker Drive, Chicago, Illinois
60606 acts as Distributor of the Trust's Shares and Shareholder Service Agent.
Pursuant to a Distribution Agreement and a Shareholder Service Agreement,
Wayne Hummer directly or through other firms, as discussed below, provides
information and services to existing and potential Shareholders such as:
processing new Shareholder account applications; converting funds into or
advancing federal funds for the purchase of Shares as well as transmitting
purchase orders to the Trust's Transfer Agent; transmitting redemption
requests to the Trust's Transfer Agent and transmitting the proceeds of
redemption of Shares pursuant to Shareholder instructions when such redemption
is effected through Wayne Hummer; providing telephonic and written
communications with respect to Shareholder account inquiries and serving as
the primary interface with existing and potential Shareholders in answering
questions concerning the Trust and their transactions with the Trust; and
providing literature distribution, advertising and promotion as is necessary
or appropriate for providing information and services to existing and
potential Shareholders. Wayne Hummer may be reimbursed by the Trust for
certain out-of-pocket costs in connection with its services to existing
Shareholders as Shareholder Service Agent including such costs as postage;
data entry, modification and printout; stationery; tax forms and all external
forms or printed material, though it does not receive a fee from the Trust nor
is it reimbursed from the Trust for any expenses it incurs in its capacity as
Distributor of the Trust's Shares.
As of January 1, 1991 the Investment Adviser entered into an Agreement with
Wayne Hummer whereby the Investment Adviser agreed to pay to Wayne Hummer the
following: (a) for distribution services rendered to the Trust under the
Distribution Agreement, an amount equal to 35% of the gross revenues generated
from the rendering of investment advisory services to the Trust, not to exceed
in
B-14
<PAGE>
the aggregate for a particular fiscal year, however, the net profit (before
taxes and before payment of the fees so payable) earned by the Investment
Adviser for such year for the rendering of such advisory services, and (b) for
services rendered by Wayne Hummer to Trust Shareholders under the Shareholder
Service Agreement, an amount equal to 130% of the unreimbursed overhead and
labor expenses incurred by Wayne Hummer in rendering such services. The
Agreement also provides for similar payments to be made by the Investment
Adviser to Wayne Hummer for distribution and shareholder services rendered to
WHMFT and its shareholders.
Wayne Hummer may appoint various broker-dealer firms to assist in providing
distribution services for the Trust and may appoint broker-dealers and other
firms (including depository institutions such as commercial banks and savings
and loan associations) to provide administrative services for their clients as
Shareholders of the Trust under service agreements. Wayne Hummer may pay these
broker-dealers and other firms a fee for their services.
The following persons, all of whom, except as specified, are located at 300
South Wacker Drive, Chicago, Illinois 60606, have been members or employees of
Wayne Hummer, and partners of Wayne Hummer's predecessor Wayne Hummer & Co.,
for at least the past five years, and are presently members of Wayne Hummer:
William B. Hummer; Philip Wayne Hummer; Harry Flagg Baum; William A. Rogers;
Robert F. Kahlfeldt; Philip M. Burno; Joseph A. Piekarczyk; G. Ted Becker;
Steven R. Becker; W. Douglas Carroll; Richard J. Kosarek; Raymond L. Kratzer;
Jean E. Williams; Linda C. Becker; Thomas J. Rowland; Laura A. Kogut; David P.
Poitras; Richard Wholey, Jr.; Peder H. Culver; Daniel G. Hack; Ronald A.
Tyrpin; Larry H. Weisz; and Floyd E. Siegel. The George E. Barnes Family
Trust(6) is a Class C Member of Wayne Hummer and prior to April 1, 1996 had
been a limited partner of Wayne Hummer since April, 1986, and Robert H.
Chase(7) is a Class D Member of Wayne Hummer and prior to April 1, 1996, had
been a limited partner of Wayne Hummer & Co.(7) since January, 1992.
BROKERAGE ALLOCATION
The Investment Adviser determines the securities to be purchased, held and
sold by the Funds and places all orders subject to the general supervision of
the Board of Trustees. Transactions are allocated among various broker-dealers
by the Investment Adviser in its best judgment. In placing such orders, the
Investment Adviser primarily is concerned with obtaining the best combination
of price and execution. This does not mean that the Fund must base their
execution decisions solely on whether the lowest possible price or commission
costs may be obtained. In seeking to achieve the best combination of price and
execution, an effort will be made to evaluate the overall quality and
reliability of broker-dealers and the services they provide, including their
general execution capability, reliability and integrity, willingness to take
positions in securities, general operational capabilities and financial
condition. The Investment Adviser is authorized, consistent with Section 28(e)
of the Securities Exchange Act of 1934, to pay a commission to a broker-dealer
that may be greater than the commission another broker-dealer would have
charged for effecting the transaction if the Investment Adviser determines
that the commission is reasonable in relation to the value of brokerage and
research services provided. Such services may include advice concerning the
value of securities; the advisability of investing in, purchasing or selling
securities; the availability of securities or the purchasers or sellers of
securities; and furnishing analysis and reports concerning issuers and
industries, securities, economic factors, trends and portfolio strategy. It is
not possible to place a
- --------
(6) George E. Barnes, grantor of the Family Trust, was a founding partner of
Wayne Hummer & Co. and was a general partner through March, 1986. Mr.
Barnes' address is 46-730 Amir Drive, Palm Desert, California 92260.
(7) Robert H. Chase was a general partner of Wayne Hummer & Co. through
December, 1991. His address is 1246 Nicolet Circle, Appleton, Wisconsin
54915.
B-15
<PAGE>
monetary value on such research services. Since such research and statistical
services only supplement the Investment Adviser's own research efforts and any
information received must be analyzed, weighed and reviewed by the Investment
Adviser's staff, the receipt of such information is not expected to reduce
materially the Investment Adviser's cost of performing its obligations under
its advisory agreement with the Trust. The information received may be made
available to Wayne Hummer for use in serving its customers. Likewise,
information available to Wayne Hummer may be made available to the Investment
Adviser in serving the Trust and its other clients. Fund securities will not
be purchased from or sold to Wayne Hummer or the Investment Adviser or an
affiliate, as defined in the Investment Company Act of 1940, of either. The
total brokerage commissions and other transaction costs paid by the Trust in
connection with the purchase or sale of portfolio securities for the Growth
Fund for the fiscal years ended March 31, 1998, 1997, and 1996, were $18,432,
$24,203, and $30,300, respectively. For the fiscal years ended March 31, 1998,
1997, and 1996, the Trust paid no brokerage commissions or other transaction
costs in connection with the purchase or sale of portfolio securities for the
Income Fund.
PERFORMANCE INFORMATION
As described in the Prospectus, each Fund of the Trust's historical
performance may be shown in the form of "average annual total return," "total
return" and "yield" figures. These various measures of performance are
described below.
Average annual total return and total return measure both the net income
generated by, and the effect of any realized and unrealized appreciation or
depreciation of, the underlying investments of the Funds. Yield is an
annualized measure of the net investment income per share earned over a
specific one-month or 30-day period expressed as a percentage of the net asset
value of the particular Fund.
The Fund's average annual total return quotation is computed in accordance
with a standardized method prescribed by rules of the Securities and Exchange
Commission. The average annual total return for a specific period is
determined by assuming a hypothetical $1,000 investment in the Fund's shares
on the first day of the period at the then effective net asset value per share
("initial investment"), and computing the ending redeemable value ("redeemable
value") of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains dividends by the Funds have been
reinvested at net asset value on the reinvestment dates during the period.
Average annual total return figures for the Growth Fund for the one-, five-
and ten-year periods ended March 31, 1998 are 40.57%, 15.39% and 14.55%,
respectively, and from the date the Growth Fund commenced operations through
March 31, 1998 (a 171-month period) the average annual total return is 14.10%.
Average annual total return figures for the Income Fund for the one- and five-
year periods ended March 31, 1998 are 11.25% and 6.55%, respectively, and from
the date the Income Fund commenced operations through March 31, 1998 (a 64-
month period) the average annual total return is 6.97%.
The calculation of the Fund's total return is not subject to a standardized
formula. Total return performance for a specific period is calculated by first
taking an investment (assumed to be $1,000) in the Fund's shares on the first
day of the period at the then effective net asset value per share ("initial
investment") and computing the ending redeemable value ("redeemable value") of
that investment at the end of the period. The total return percentage is then
determined by subtracting the initial investment from the redeemable value and
dividing the difference by the initial investment and expressing the result as
a percentage. This calculation assumes that all income and capital gains
dividends by the Fund have been reinvested at net asset value on the
reinvestment dates during the period. Total return may also be shown as the
increased dollar value of the hypothetical investment over the period. Total
return figures for the Growth Fund for the one-, five- and ten-year periods
ended
B-16
<PAGE>
March 31, 1998, are 40.57%, 104.60% and 289.09% and from the date the Growth
Fund commenced operations through March 31, 1998 (a 171-month period) the
total return is 555.39%, respectively. Total return figures for the Income
Fund for the one- and five-year periods ended March 31, 1998, are 11.25% and
37.33% and from the time the Income Fund commenced operations through March
31, 1998 (a 64-month period) is 43.24%.
The yield for the particular Fund is computed in accordance with a
standardized method prescribed by rules of the Securities and Exchange
Commission. The Growth Fund's yield based upon the one-month period ended
March 31, 1998 was .84%. The Income Fund's yield based upon the one-month
period ended March 31, 1998 was 5.75%. Each Fund's yield is computed by
dividing the net investment income per share earned during the specific one-
month or 30-day period by the offering price per share on the last day of the
period, according to the following formula:
(a - b + 1)/6/
----------
Yield = 2 - 1
[ ]
cd
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 offering price per share on the last day of the period.
In computing yield, the Funds follow certain standardized accounting
practices specified by Securities and Exchange Commission rules. These
practices are not necessarily consistent with those that the Funds use to
prepare their annual and interim financial statements in accordance with
generally accepted accounting principles.
The particular Fund's performance quotations are based upon historical
results and are not necessarily representative of future performance. The
particular Fund's shares are sold at net asset value, and performance figures
and net asset value will fluctuate. Factors affecting the Trust's performance
include general market conditions, operating expenses and investment
management. Shares of each particular Fund are redeemable at net asset value,
which may be more or less than original cost.
SHAREHOLDER VOTING RIGHTS
See "DESCRIPTION OF SHARES--Shareholder Voting Rights" in the Prospectus for
a discussion of those matters in connection with which Shareholders are
entitled to vote. As a general rule the Trust will not hold annual or other
meetings of Trust Shareholders; provided, however, that with respect to the
election of Trustees, the Trust will, in accordance with the Investment
Company Act of 1940, hold a Shareholders' meeting for the election of Trustees
at such time as less than a majority of the Trustees holding office have been
elected by Shareholders, and, if as a result of a vacancy in the Board of
Trustees less than two-thirds of the Trustees holding office have been elected
by the Shareholders, that vacancy will be filled only by a vote of the
Shareholders. In addition, Trustees may be removed from office by a vote of
the holders of at least two-thirds of the outstanding Shares at a meeting duly
called for that purpose, which meeting shall be held upon the written request
of the holders of not less than 10% of the outstanding Shares. Upon the
written request of the holders of Shares having a net asset value of $25,000
or constituting 1% of the outstanding Shares of each Fund stating that such
Shareholders wish to communicate with the other Shareholders for the purpose
of obtaining the signatures necessary to demand a meeting to consider removal
of a Trustee, the Trust has undertaken to provide a list of Shareholders or to
disseminate appropriate materials (at the expense of the requesting
Shareholders).
B-17
<PAGE>
The Trust Agreement specifically authorizes the Board of Trustees to
terminate the Trust without Shareholder approval by notice to the
Shareholders. The Investment Company Act of 1940, however, prohibits an
investment company from changing the nature of its business so as to cease to
be an investment company unless such action is authorized by the vote of a
majority of its outstanding Shares.
OTHER MATTERS
The Trust is a trust of the type commonly known as a "Massachusetts business
trust." The Trust Agreement and the By-Laws of the Trust are designed to make
the Trust similar in many respects to a Massachusetts business corporation.
Unlike a corporation, a Massachusetts business trust is not required to issue
share certificates. Unless terminated by vote of Shareholders holding at least
a majority of the outstanding Shares of a Fund entitled to vote or by the
Trustees by written notice to the Shareholders, the Fund will continue without
limitation as to duration. As used in this Statement of Additional
Information, the term "majority of the outstanding Shares" of the Fund means
the vote of the lesser of (1) the holders of 67% or more of the Shares of the
Fund present or represented by proxy at a meeting, if the holders of more than
50% of the outstanding Shares of the Fund are present or represented by proxy,
or (2) the holders of more than 50% of the outstanding Shares of the Fund.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of
the trust, which is not the case with a corporation.
The Trust Agreement provides that Shareholders shall not be subject to any
personal liability to any person extending credit to, contracting with or
having any claims against the Trust and that every written agreement,
obligation, instrument or undertaking made by the Trust shall contain a
provision that the same is not binding upon the Shareholders personally. The
law firm of Ropes & Gray, Boston, Massachusetts, which supervised the
organization of the Trust under Massachusetts law, is of the opinion that,
pursuant to Massachusetts law, Shareholders will not be liable personally for
contract claims under any such agreement, obligation, instrument or
undertaking governed by Massachusetts law and containing such provision when
adequate notice of such provision is given. With respect to other claims, a
Shareholder may be held personally liable to the extent that claims are not
satisfied by the Trust. Upon payment of any such liability, however, the Trust
Agreement provides that Shareholders will be entitled to reimbursement from
the general assets of the Trust.
The Trustees intend to conduct the operations of the Trust, with the advice
of counsel, in such a way so as to avoid, as far as possible, ultimate
liability of the Shareholders for liabilities of the Trust. The Trust is
covered by insurance which the Trustees consider adequate to cover foreseeable
tort claims.
LIMITATION OF LIABILITY
The Trust Agreement provides that the Trust shall indemnify the Trustees and
officers of the Trust against liability arising in connection with the affairs
of the Trust to the fullest extent permitted by law. The Trust Agreement also
provides that all third persons shall look solely to the Trust property for
satisfaction of claims arising in connection with the affairs of the Trust.
TRUST NAME
The Board of Trustees voted to change the name of the Trust from "Wayne
Hummer Growth Fund Trust" to "Wayne Hummer Investment Trust" effective
December 1, 1992.
B-18
<PAGE>
Pursuant to an agreement with the Investment Adviser, the Trust has been
granted a non-exclusive license ("License") to use the trade name and service
mark "Wayne Hummer" (the "Name"), a registered service mark of Wayne Hummer,
without charge for as long as the Trust is solvent, Wayne Hummer Management
Company is the Investment Adviser to the Trust and Wayne Hummer is the
Distributor and Shareholder Service Agent. If Wayne Hummer Management Company
ceases to act as Investment Adviser or if Wayne Hummer ceases to act as
Distributor and Shareholder Service Agent, then the Trust will be required to
change its name and to deliver to Wayne Hummer Management Company for
destruction all materials in which the Name is used. Wayne Hummer Management
Company may exercise control over use of the Name and the Trust has agreed to
indemnify Wayne Hummer Management Company against expenses or losses which may
arise from the Trust's misuse of the Name or out of any breach of the License
regarding the use of the Name. The Investment Adviser has entered into a
similar non-exclusive license for use of the Name with Wayne Hummer Money Fund
Trust.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For a discussion of the manner in which Trust shares are offered to the
public, see "PURCHASE OF SHARES" in the Prospectus. Additionally, an investor
in the Trust may purchase additional Trust shares through automatic
reinvestment of dividends. See "DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS" in
the Prospectus. For a full description of redemption procedures, see
"REDEMPTION OF SHARES" in the Prospectus.
DETERMINATION OF NET ASSET VALUE
The purchase price for each of the Fund Shares is the net asset value per
Share which is determined on each day the New York Stock Exchange is open for
trading as of the close of regular session trading on the New York Stock
Exchange (generally 3:00 p.m. Chicago time) on each business day and at 3:00
p.m. Chicago time on each other day during which there is a sufficient degree
of trading in securities of the particular Fund so as to affect materially the
net asset value of the Shares of such Fund. The net asset value per Share for
each Fund is computed by dividing the value of the portfolio of securities of
the particular Fund plus any other assets minus all liabilities by the total
number of such Fund's Shares outstanding. Expenses, including the fees payable
to the Investment Adviser and the Distributor and Shareholder Service Agent,
are accrued daily.
In valuing the Growth Fund securities, each listed and unlisted security for
which last sale information is regularly reported is valued at the last
reported sale price on that day. If there has been no sale on such day, the
last reported sale price prior to that day is utilized if such sale is between
the closing bid and asked price of the current day. If the last sale price on
a prior day is not between the current day's closing bid and asked prices,
then the value of such security is taken to be the mean between the current
day's bid and asked prices. In valuing the Income Fund's securities, fixed
income securities are valued by using market quotations, or independent
pricing services that use prices provided by market makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics. Any unlisted security for which last sale
information is not regularly reported or any listed debt security which has an
inactive listed market for which over-the-counter market quotations are
readily available is valued at the highest closing bid price determined on the
basis of reasonable inquiry. Restricted securities and any other securities or
other assets for which market quotations are not readily available are valued
by appraisal at their fair values as determined in good faith under procedures
established by and under the general supervision and responsibility of the
Board of Trustees. Debt securities having a remaining maturity of less than
sixty days are valued at cost adjusted for amortization of premiums and
accretion of discounts.
B-19
<PAGE>
TAXES
Please refer to information concerning taxes which is found in the
Prospectus under the heading "TAXES," which is incorporated herein by
reference. The following discussion relates to both Funds.
FEDERAL INCOME TAX
All distributions of net investment income and net short-term capital gains
will be taxable to Shareholders as ordinary income whether received in cash or
reinvested in additional Shares. Distributions of long-term capital gains,
whether received in cash or reinvested in additional Shares, will be taxable
to Shareholders as long-term capital gains, regardless of the length of time
the Shareholder has held Shares in a Fund. Under current law, ordinary income
distributions and capital gain distributions received by corporate
Shareholders will be taxed at the same rate. However, capital gain
distributions received by individual Shareholders will be taxed at a maximum
rate of 20% (for assets held by the Funds for more than 1 year). Since
distributions reduce net asset value, an investor purchasing Shares shortly
before a record date will, in effect, receive a return of a portion of his or
her investment in such distribution, but the distribution will be taxable. If
the net asset value of Shares is reduced by distributions below a
Shareholder's cost, such distributions would be taxable even though
constituting a return of investment. However, for federal income tax purposes
the Shareholder's original cost continues as the tax basis of the Shares and
on redemption his or her capital gain or loss generally is the difference
between the original cost and the redemption proceeds.
Any loss recognized on the disposition of Shares held for six months or less
will be treated as long-term capital loss to the extent that the Shareholder
has received any long-term capital gain distributions on such Shares.
A Fund's options, futures and foreign currency transactions are subject to
special tax provisions that may accelerate or defer recognition of certain
gains or losses, change the character of certain gains or losses, or alter the
holding periods of certain of the Fund's securities.
The mark-to-market rules of the Code may require a Fund to recognize
unrealized gains and losses on certain options and futures held by a Fund at
the end of the fiscal year. Under these provisions, 60% of any capital gain
net income or loss recognized will generally be treated as long-term and 40%
as short-term. In addition, the straddle rules of the Code would require
deferral of certain losses realized on positions of a straddle to the extent
that a Fund had unrealized gains in offsetting positions at year end.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution generally is the sum of 98% of a Fund's net investment income for
the calendar year plus 98% of its capital gain net income for the one-year
period ending October 31. Each Fund intends to declare or distribute dividends
during the calendar year in an amount sufficient to prevent imposition of the
4% excise tax.
Shareholders who are non-resident aliens are subject to U.S. withholding tax
on ordinary income dividends (whether received in cash or shares) at a rate of
30% or such lower rate as prescribed by an applicable tax treaty.
OTHER TAXES
The Trust may be subject to tax in certain states where it does business.
Further, in those states which have income tax laws, the tax treatment of the
Trust and of Shareholders may differ from federal income tax treatment.
Shareholders are advised to consult their own tax advisors regarding specific
questions as to federal, state or local taxes.
B-20
<PAGE>
INDEPENDENT AUDITORS
The Trust's independent auditors are Ernst & Young LLP, 233 South Wacker
Drive, Chicago, Illinois 60606, who audit and report on the Trust's annual
financial statements, review certain regulatory reports and the Trust's
federal income tax return, and perform other professional accounting,
auditing, tax and advisory services when engaged to do so by the Trust. The
selection of independent auditors is subject to ratification by the Trust's
Shareholders when Shareholders' meetings are held.
CUSTODIAN AND TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as Custodian for the Trust's assets and as the
Trust's Transfer and Dividend Paying Agent.
The Custodian is responsible for holding all securities and cash of the
Trust, receiving and paying for securities purchased, receiving payment for
and delivering securities sold, receiving and collecting income from
investments, making all payments covering expenses of the Trust, and
performing other administrative duties, all as directed by authorized persons.
The Custodian does not perform any advisory function in such matters as
purchase and sale of portfolio securities, payment of dividends, or payment of
expenses of the Trust. The Trust has authorized the Custodian to deposit
certain portfolio securities in central depository systems as permitted under
federal law. The Trust may invest in obligations of the Custodian and may
purchase or sell securities from or to the Custodian.
LEGAL COUNSEL
The law firm of Vedder, Price, Kaufman & Kammholz, Chicago, Illinois, acts
as legal counsel for the Trust. The law firm of Bell, Boyd & Lloyd, Chicago,
Illinois, acts as special counsel to those Trustees who are not interested
persons, as defined in the Investment Company Act of 1940, of the Trust.
REPORTS TO SHAREHOLDERS
The Trust sends to its Shareholders various financial reports ("Reports")
such as unaudited semi-annual financial statements and fiscal year-end
financial statements audited by the Trust's independent auditors. To reduce
expenses, only one copy of most Reports may be mailed to all accounts with the
same social security or taxpayer identification number or to all Shareholders
in the same household. Shareholders may call or write Wayne Hummer to request
that copies of Reports be mailed to each account with a common taxpayer number
or to two or more Shareholders in the same household.
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT AUDITORS
The financial statements and the report of independent auditors contained in
the Growth Fund's and the Income Fund's annual report to Shareholders (each
entitled "Annual Financial Statements (Audited)") for the fiscal year ended
March 31, 1998, were filed with the Securities and Exchange Commission on May
22, 1998 and are incorporated herein by reference. The Trust's "Annual
Financial Statements (Audited)," unless previously received, must accompany
this Statement of Additional Information.
B-21
<PAGE>
PART C
WAYNE HUMMER INVESTMENT TRUST
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Index to Financial Statements:
1. Included in Part A of this Registration Statement:
(i) Condensed Financial Information for the Growth Fund -
Per Share Income and Capital Changes
(ii) Condensed Financial Information for the Income Fund -
Per Share Income and Capital Changes
2. Included in Part B of this Registration Statement through
incorporation by reference to the financial statements in each of
the Trust's annual reports to Shareholders for the fiscal year
ended March 31, 1998:
(i) Report of Independent Auditors
(ii) Statement of Assets and Liabilities at March 31, 1998
(iii) Statement of Operations for the year ended March 31,
1998
(iv) Statement of Changes in Net Assets for the years
ended March 31, 1998 and 1997
(v) Portfolio of Investments at March 31, 1998
(vi) Notes to Financial Statements
3. Included in Part C of this Registration Statement:
(i) Schedule I has been omitted as the required
information is presented in the Portfolio of
Investments at March 31, 1998
(ii) Schedules II, III, IV and V are omitted as the
required information is not present.
C-1
<PAGE>
(b) Exhibits:
1.(a) Agreement and Declaration of Trust
dated September 29, 1983 /1/
1.(b) Written Instrument Amending The
Agreement and Declaration of Trust
dated December 16, 1983 /1/
1.(c) Written Instrument Amending The
Agreement and Declaration of Trust
dated July 19, 1988 /1/
1.(d) Written Instrument Amending The
Agreement and Declaration of Trust
dated November 24, 1992 /1/
2. Amended and Restated By-laws /1/
3. Not applicable
4. Not applicable
5.(a) Investment Advisory and Management
Agreement dated April 29, 1988 /1/
5.(b) Amendment to Investment Advisory
and Management Agreement dated
November 24, 1992 /1/
6.(a) Distribution and Shareholder
Service Agreement /1/
6.(b) Distribution Agreement dated August 1,
1988 /1/
6(c) Acknowledgment and Consent of Assignment /2/
7. Not applicable
______________________________
* Filed herewith
/1/ Previously filed via EDGAR with Post-Effective Amendment No. 15 on or about
July 27, 1995 and incorporated herein by reference.
/2/ Previously filed with Post-Effective Amendment No. 16 on May 31, 1996 and
incorporated herein by reference.
C-2
<PAGE>
8.(a) Custodian Agreement /1/
8.(b) Amendments to Custodian Agreement dated
October 1987 /1/
8.(c) Amendments to Custodian Agreement dated
June 1988 /1/
8.(d) Amendment to Custodian Agreement
dated November 24, 1992 /1/
9.(a)(1) Transfer and Dividend Paying
Agency Agreement /1/
9.(a)(2) Amendment to Transfer and Dividend
Paying Agency Agreement dated November 24,
1992 /1/
9.(b) Trade Name and Service Mark
License Agreement /1/
9.(c) Shareholder Service Agreement dated
August 1, 1988 /1/
9.(d) Portfolio Accounting Services
Agreement /1/
10. Not applicable
*11.(a) Consent of Ernst & Young LLP
*11.(b) Representation of Vedder, Price,
Kaufman & Kammholz
12. Not applicable
13. Investment Letter from Wayne Hummer
Management Company to the Registrant /1/
*14.(a) IRA and Roth IRA Plan Agreements and Disclosure
Statements
14.(b) SEP Prototype Plan and Documents /1/
C-3
<PAGE>
14.(c) Defined Contribution Prototype Plans
and Documents /1/
15. Not applicable
16. Computation of Performance Quotations /1/
*27. Financial Data Schedules
C-4
<PAGE>
Item 25. Persons Controlled By or Under Common Control with
--------------------------------------------------
Registrant
----------
Not applicable.
Item 26. Number of Holders of Securities
-------------------------------
Number of Holders
Title of Class of Securities
-------------- -----------------
Growth Fund Portfolio Shares 5,344
Income Fund Portfolio Shares 813
(Information provided as of June 30,1998)
Item 27. Indemnification
---------------
The information required by this item is incorporated herein by reference
to Item 4 of Part II of Pre-effective Amendment No. 1 to the Form N-1
Registration Statement for Wayne Hummer Growth Trust (renamed Wayne Hummer
Investment Trust), File No. 2-87153, filed on or about December 29, 1983.
Item 28. Business and Other Connections of Investment
--------------------------------------------
Adviser
-------
Wayne Hummer Management Company, Registrant's investment adviser and
portfolio accounting agent, is a corporation organized under the laws of
Illinois on November 30, 1981. Wayne Hummer Management Company acts as
investment adviser and portfolio accounting agent to Wayne Hummer Money Fund
Trust, a registered investment company, and as investment adviser to other
institutional, corporate, fiduciary and individual accounts. Set forth below is
information as to any other business, vocation or employment of a substantial
nature in which each director or officer of the Registrant's investment adviser
is, or at any time during the past two fiscal years has been, engaged for his
own account or in the capacity of director, officer, employee, partner or
trustee:
<TABLE>
<CAPTION>
Name and
Affiliation with Name of Company and/or
Investment Adviser Principal Business Capacity
- -------------------- ------------------------ -------------
<S> <C> <C>
Harry Flagg Baum, Wayne Hummer Investments Voting Member
Director L.L.C., securities
brokerage firm
</TABLE>
C-5
<PAGE>
Name and
Affiliation with Name of Company and/or
Investment Adviser Principal Business Capacity
- -------------------- ------------------------ -------------
Steven R. Becker, Wayne Hummer Investments Voting Member
Director L.L.C., securities
brokerage firm
Wayne Hummer Money Trustee
Fund Trust
Registrant Trustee
G. Ted Becker, Wayne Hummer Investments, Voting Member
Treasurer L.L.C., securities
brokerage firm
Philip M. Burno, Wayne Hummer Investments Voting Member
Director L.L.C., securities
brokerage firm
Wayne Hummer Money Chairman of
Fund Trust the Board of
Trustees
Registrant Chairman of
the Board of
Trustees
Philip Wayne Hummer, Wayne Hummer Investments Voting Member
C-6
<PAGE>
Name and
Affiliation with Name of Company and/or
Investment Adviser Principal Business Capacity
- -------------------- ------------------------ -------------
Chairman and L.L.C., securities
Director brokerage firm
David P. Poitras, Wayne Hummer Investments Voting Member
Vice President L.L.C., securities
brokerage firm
Wayne Hummer Money Fund President
Trust, registered
investment company
Registrant Vice President
William A. Rogers, Wayne Hummer Investments Voting Member
Secretary and L.L.C., securities
Director brokerage firm
Thomas J. Rowland, Wayne Hummer Investments Voting Member
President L.L.C., securities
brokerage firm
Registrant President
Mark H. Dierkes Wayne Hummer Investments Employee
Vice President L.L.C., securities
brokerage firm
Damaris E. Martinez Wayne Hummer Investments Employee
Vice President L.L.C., securities
brokerage firm
The principal business address of each company or other entity named above
is 300 South Wacker Drive, Chicago, Illinois 60606.
Item 29. Principal Underwriters
----------------------
(a) Wayne Hummer, the Registrant's distributor, also acts as distributor
of Wayne Hummer Money Fund Trust.
(b) The members of Wayne Hummer are:
C-7
<PAGE>
Positions and Positions and
Offices with Offices with
Name Wayne Hummer Registrant
---- -------------- -------------------
William B. Hummer Voting Member None
Philip Wayne Hummer Voting Member None
Harry Flagg Baum Voting Member None
Robert H. Chase Class D Member None
William A. Rogers Voting Member None
Robert F. Kahlfeldt Voting Member None
Philip M. Burno Voting Member Chairman of the
Board of Trustees
Joseph A. Piekarczyk Voting Member None
G. Ted Becker Voting Member None
Steven R. Becker Voting Member Trustee
W. Douglas Carroll Voting Member None
Richard J. Kosarek Voting Member None
Raymond L. Kratzer Voting Member None
Jean E. Williams Voting Member None
C-8
<PAGE>
<TABLE>
<CAPTION>
Positions and Positions and
Offices with Offices with
Name Wayne Hummer Registrant
---- -------------- -------------------
<S> <C> <C>
George E. Barnes Class C Member None
Family Trust
Thomas J. Rowland Voting Member President
Linda C. Becker Voting Member None
Laura A. Kogut Voting Member None
David P. Poitras Voting Member Vice President
Richard Wholey, Jr. Voting Member None
Peder H. Culver Voting Member None
Daniel G. Hack Voting Member None
Ronald A. Tyrpin Voting Member None
Floyd E. Siegel Voting Member None
Larry H. Weisz Voting Member None
</TABLE>
The principal business address of each Member listed above is 300 South
Wacker Drive, Chicago, Illinois 60606. George E. Barnes, grantor of the Family
Trust, was a founding partner of Wayne Hummer & Co., was a General Partner until
April 1, 1986 and had been a limited partner from April 1986 through April 1996.
Mr. Barnes, whose address is 46-730 Amir Drive, Palm Desert, California 92260,
was formerly a Trustee of Registrant. Robert H. Chase, whose address is 1246
Nicolet Circle, Appleton, Wisconsin 54915, was a General Partner of Wayne Hummer
& Co. until December, 1991 and had been a limited partner from December 1991
through April 1, 1996.
C-9
<PAGE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books and other documents required to be maintained pursuant
to Section 31(a) of the Investment Company Act of
1940 and the Rules promulgated thereunder are in the physical possession of:
Registrant's investment adviser, Wayne Hummer Management Company; Registrant's
distributor and shareholder service agent, Wayne Hummer; and Registrant's
transfer and dividend paying agent and custodian, State Street Bank and Trust
Company. The address of Wayne Hummer Management Company and of Wayne Hummer is
300 South Wacker Drive, Chicago, Illinois 60606. The address of State Street
Bank and Trust Company is 225 Franklin Street, Boston, Massachusetts 02110.
Item 31. Management Services
-------------------
Not Applicable.
Item 32. Undertakings
------------
Not Applicable.
C-10
<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, thereto
duly authorized, in the City of Chicago and State of Illinois on 27th day of
July, 1998.
WAYNE HUMMER INVESTMENT TRUST
By /s/ Thomas J. Rowland
----------------------------------
Thomas J. Rowland, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on July 27, 1998 by the following
persons in the capacities indicated.
Signature Title
- ------------------------------ -----
/s/ Thomas J. Rowland President
- ------------------------------
Thomas J. Rowland
/s/ Jean M. Maurice Treasurer
- ------------------------------
Jean M. Maurice
/s/ Steven R. Becker Trustee
- ------------------------------
Steven R. Becker
/s/ Philip M. Burno Trustee
- ------------------------------
Philip M. Burno
/s/ Joel D. Gingiss Trustee
- ------------------------------
Joel D. Gingiss
/s/ Patrick B. Long Trustee
- ------------------------------
Patrick B. Long
/s/ Eustace K. Shaw Trustee
- ------------------------------
Eustace K. Shaw
/s/ Charles V. Doherty Trustee
- ------------------------------
Charles V. Doherty
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
- -------
1.(a) Agreement and Declaration of Trust
dated September 29, 1983 /1/
1.(b) Written Instrument Amending The
Agreement and Declaration of Trust
dated December 16, 1983 /1/
1.(c) Written Instrument Amending The
Agreement and Declaration of Trust
dated July 19, 1988 /1/
1.(d) Written Instrument Amending
The Agreement and Declaration of
Trust dated November 24, 1992. /1/
2. Amended and Restated By-laws /1/
3. Not applicable
4. Not applicable
5.(a) Investment Advisory and Management
Agreement dated April 29, 1988 /1/
5.(b) Amendment to Investment
Advisory and Management Agreement
dated November 24, 1992 /1/
6.(a) Distribution and Shareholder
Service Agreement /1/
6.(b) Distribution Agreement dated August 1,
1988 /1/
6.(c) Acknowledgement and Consent of Assignment /2/
7. Not applicable
8.(a) Custodian Agreement /1/
8.(b) Amendments to Custodian Agreement
dated October 1987 /1/
8.(c) Amendments to Custodian
Agreement dated June 1988 /1/
8.(d) Amendment to Custodian
Agreement dated November 24, 1992
9.(a)(1) Transfer and Dividend Paying
Agency Agreement /1/
9.(a)(2) Amendment to Transfer and
Dividend Paying Agency Agreement
dated November 24, 1992
9.(b) Trade Name and Service Mark
License Agreement /1/
9.(c) Shareholder Service Agreement
dated August 1, 1988 /1/
9.(d) Portfolio Accounting Services
Agreement /1/
10. Not applicable
*11.(a) Consent of Ernst & Young LLP
*11.(b) Representation of Vedder, Price, Kaufman and Kaummholz
12. Not applicable
13. Investment Letter from Wayne Hummer
Management Company to the Registrant /1/
*14.(a) IRA and Roth IRA Plan Agreements and
Disclosure Statements
14.(b) SEP Prototype Plan and Documents /1/
14.(c) Defined Contribution Prototype Plans
and Documents /1/
15. Not applicable
16. Computation of Performance Quotations /1/
*27. Financial Data Schedules
__________________________________
* Filed herewith
/1/ Previously filed via EDGAR with Post-Effective Amendment
No. 15 on or about July 27, 1995.
/2/ Previously filed with Post-Effective Amendment No. 16
on or about May 31, 1996.
<PAGE>
Exhibit 11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial Highlights
for the Growth Fund," "Financial Highlights for the Income Fund," and
"Independent Auditors" and to the use of our reports dated May 1, 1998 relating
to the Wayne Hummer Growth Fund and Wayne Hummer Income Fund in the Registration
Statement (Form N-1A) and their incorporation by reference in the related
Prospectus and Statement of Additional Information of Wayne Hummer Investment
Trust, filed with the Securities and Exchange Commission in this Post-Effective
Amendment No. 18 to the Registration Statement under the Securities Act of 1933
(Registration No. 2-87153) and in this Amendment No. 18 to the Registration
Statement under the Investment Company Act of 1940 (Registration No. 811-
3880).
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Chicago, Illinois
July 23, 1998
<PAGE>
Exhibit 11(b)
July 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Wayne Hummer Investment Trust
To the Commission:
We are counsel to the above-referenced investment company (the "Fund") and
as such have participated in the preparation and review of Post-Effective
Amendment No. 18 to the Fund's Registration Statement being filed pursuant to
Rule 485(b) under the Securities Act of 1933. In accordance with paragraph
(b)(4) of Rule 485, we hereby represent that such amendment does not contain
disclosures that would render it ineligible to become effective pursuant to
paragraph (b) thereof.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
By /s/ Robert J. Moran
------------------------------
Robert J. Moran
RJM/cy
<PAGE>
____________
IRA Plan
____________
Agreement and
____________
Disclosure
____________
Statement
Wayne Hummer Investments LLC
[Hummer logo]
<PAGE>
To Cancel My IRA Within 7 Days
I understand that I have the right to cancel my IRA within 7 calendar days of
its establishment. I understand that to cancel my IRA, I need to provide Wayne
Hummer Investments LLC with WRITTEN notice at the following address before the
seven day period expires:
Wayne Hummer Investments LLC
300 S. Wacker Drive
Chicago, IL 60606
If my notice is sent by mail, it must be postmarked within the seven day period.
My notice also needs to be properly addressed, with proper first class postage,
enclosed in an envelope, and sent by the U.S. mail to be considered mailed on
the postmarked date.
If I cancel my IRA, Wayne Hummer Investments LLC will refund to me the entire
amount of the contributions I made before my revocation. There are no penalties
for revocation, but I will earn no interest on my contribution if I revoke my
IRA.
<PAGE>
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Form 5305-A Under Section 408(a) of the Internal Revenue Code FORM
(REV.JAN.1998)
The Depositor whose name appears on the Application is establishing an
Individual Retirement Account under Section 408(a) to provide for his or her
retirement and for the support of his or her beneficiaries after death.
The Custodian named on the Application has given the Depositor the disclosure
statement required under Regulations Section 1.408-6.
The Depositor has assigned the trust the sum indicated on the Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I.......................................................................
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a Simplified Employee Pension Plan as described in
Section 408(k).
ARTICLE II......................................................................
The Depositor's interest in the balance in the Custodial account is
nonforfeitable.
ARTICLE III.....................................................................
1. No part of the Custodial funds may be invested in life insurance contracts,
nor may the assets of the Custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning
of Section 408(a)(5)).
2. No part of the Custodial funds may be invested in collectibles (within the
meaning of Section 408(m)) except as otherwise permitted by Section 408(m)(3)
which provides an exception for certain gold, silver, and platinum coins,
coins issued under the laws of any state, and certain bullion.
ARTICLE IV......................................................................
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the Custodial account shall be
made in accordance with the following requirements and shall otherwise comply
with Section 408(a)(6) and Proposed Regulations Section 1.408-8, including
the incidental death benefit provisions of Proposed Regulations Section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph
1
<PAGE>
3, or to the surviving spouse under paragraph 4, other than in the case of a
life annuity, life expectancies shall be recalculated annually. Such election
shall be irrevocable as to the Depositor and the surviving spouse and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. The Depositor's entire interest in the Custodial account must be, or begin to
be, distributed by the Depositor's required beginning date, April 1 following
the calendar year end in which the Depositor reaches age 70 1/2. By that
date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the Custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of
the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor expectancy
of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has
begun, distribution must continue to be made in accordance with paragraph
3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the
life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the year
of the Depositor's death. If, however, the beneficiary is the
Depositor's surviving spouse, then this distribution is not required
to begin before December 31 of the year in which the Depositor would
have reached age 70 1/2.
2
<PAGE>
(c) Except where distribution in the form of an annuity meeting the
requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually have
been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in
the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Depositor's entire interest in the Custodial Account as of the
close of business on December 31 of the preceding year by the life expectancy
of the Depositor (or the joint life and last survivor expectancy of the
Depositor and the Depositor's designated beneficiary, or the life expectancy
of the designated beneficiary, whichever applies). In the case of
distributions under paragraph 3, determine the initial life expectancy (or
joint life and last survivor expectancy) using the attained ages of the
Depositor and designated beneficiary as of their birthdays in the year the
Depositor reaches age 70 1/2. In the case of a distribution in accordance
with paragraph 4(b)(ii), determine life expectancy using the attained age of
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy
the minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for
another.
ARTICLE V.......................................................................
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under Section 408(i) and
Regulations Sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI......................................................................
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with Section 408(a) and related
regulations will be invalid.
3
<PAGE>
ARTICLE VII.....................................................................
This Agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the Application.
ARTICLE VIII....................................................................
8.01 Definitions: In this part of this Agreement (Article VIII), the words
"you" and "your" mean the Depositor, the words "we," "us" and "our" mean
the Custodian and "Code" means the Internal Revenue Code.
8.02 Notices and Change of Address: Any required notice regarding this IRA
will be considered effective when we mail it to the last address of the
intended recipient which we have in our records. Any notice to be given to
us will be considered effective when we actually receive it. You must
notify us of any change of address.
8.03 Representations and Responsibilities: You represent and warrant to us
that any information you have given or will give us with respect to this
Agreement is complete and accurate. Further, you agree that any directions
you give us, or action you take will be proper under this Agreement and
that we are entitled to rely upon any such information or directions. We
shall not be responsible for losses of any kind that may result from your
directions to us or your actions or failures to act and you agree to
reimburse us for any loss we may incur as a result of such directions,
actions or failures to act. We shall not be responsible for any penalties,
taxes, judgments or expenses you incur in connection with your IRA. We have
no duty to determine whether your contributions or distributions comply
with the Code, regulations, rulings or this Agreement.
8.04 Service Fees: We have the right to charge an annual service fee or other
designated fees (for example, a transfer, rollover or termination fee) for
maintaining your IRA. In addition, we have the right to be reimbursed for
all reasonable expenses we incur in connection with the administration of
your IRA. We may charge you separately for any fees or expenses or we may
deduct the amount of the fees or expenses from the assets in your IRA at
our discretion. We reserve the right to charge any additional fee upon 30
days notice to you that the fee will be effective.
Any brokerage commissions attributable to the assets in your IRA will be
charged to your IRA. You cannot reimburse your IRA for those commissions.
4
<PAGE>
8.05 Investment of Amounts in the IRA:
a. Direction of Investment - You have exclusive responsibility for and
control over the investment of the assets of your IRA. You shall direct
all investment transactions, including earnings and the proceeds from
securities sales. Your selection of investments, however, shall be
limited to publicly traded securities, mutual funds, money market
instruments and other investments that are obtainable by us and that we
are capable of holding in the ordinary course of our business.
In the absence of instructions from you or if your instructions are not
in a form acceptable to us, we shall hold any uninvested amounts in
cash and we shall have no responsibility to invest uninvested cash
unless and until directed by you.
All transactions shall be subject to any and all applicable Federal and
State laws and regulations and the rules, regulations, customs and
usages of any exchange, market or clearing house where the transaction
is executed and to our policies and practices.
After your death, your beneficiary(ies) shall have the right to direct
the investment of your IRA assets, subject to the same conditions that
applied to you during your lifetime under this Agreement (including,
without limitation, Section 8.03).
b. Our Investment Powers and Duties - We shall have no discretion to
direct any investment in your IRA. We assume no responsibility for
rendering investment advice with respect to your IRA, nor will we offer
any opinion or judgment to you on matters concerning the value or
suitability of any investment or proposed investment for your IRA. We
shall exercise the voting rights and other shareholder rights with
respect to securities in your IRA but only in accordance with the
instructions you give to us.
c. Delegation of Investment Responsibility - We may, but are not required
to, permit you to delegate your investment responsibility for your IRA
to another party acceptable to us by giving written notice of your
delegation in a format we prescribe. We shall follow the direction of
any such party who is properly appointed and we shall be under no duty
to review or question, nor shall we be responsible for, any of that
party's directions, actions or failures to act.
8.06 Beneficiaries: If you die before you receive all of the amounts in your
IRA, payments from your IRA will be made to your beneficiaries.
You may designate one or more person or entity as beneficiary of your IRA.
This designation can only
5
<PAGE>
be made on a form prescribed by us and it will only be effective when it is
filed with us during your lifetime. Each beneficiary designation you file
with us will cancel all previous ones. The consent of a beneficiary shall
not be required for you to revoke a beneficiary designation. If you do not
designate a beneficiary, your estate will be the beneficiary.
If the beneficiary payment election described in Article IV, Section 4(b)
of this Agreement is not made by December 31 of the year following the year
of your death, the following rules apply. If the beneficiary is your
spouse, the payment described in Article IV, Section 4(b)(ii) will be
deemed elected (that is, payments over the life or life expectancy of your
spouse). If the beneficiary or beneficiaries are or include anyone other
than your surviving spouse, the payment method described in Article IV,
Section 4(b)(i) will be deemed elected (that is the 5 year rule).
A spouse beneficiary will retain the option to treat the deceased's IRA as
his or her own.
8.07 Termination: Either party may terminate this Agreement at any time by
giving written notice to the other. We can resign as Custodian at any time
effective 30 days after we mail written notice of our resignation to you.
Upon receipt of that notice, you must make arrangements to transfer your
IRA to another financial organization. If you do not complete a transfer of
your IRA within 30 days from the date we mail the notice to you, we have
the right to transfer your IRA assets to a successor IRA custodian or
trustee that we choose in our sole discretion or we may pay your IRA to you
in a single sum. We shall not be liable for any actions or failures to act
on the part of any successor custodian or trustee nor for any tax
consequences you may incur that result from the transfer or distribution of
your assets pursuant to this section.
If this Agreement is terminated, we may hold back from your IRA a
reasonable amount of money that we believe is necessary to cover any one or
more of the following:
. any fees, expenses or taxes chargeable against your IRA;
. any penalties associated with the early withdrawal of any savings
instrument or other investment in your IRA.
If our organization is merged with another organization (or comes under the
control of any Federal or State agency) or if our entire organization (or
any portion which includes your IRA) is bought by another organization,
that organization (or agency) shall automatically become the custodian or
trustee
6
<PAGE>
of your IRA, but only if it is the type of organization authorized to serve
as an IRA custodian or trustee.
If we are required to comply with Section 1.408-2(e) of the Treasury
Regulations and we fail to do so, or we are not keeping the records, making
the returns or sending the statements as are required by forms or
regulations, the IRS may, after notifying you, require you to substitute
another custodian or trustee.
8.08 Amendments: We have the right to amend this Agreement at any time. Any
amendment we make to comply with the Code and related regulations does not
require your consent. You will be deemed to have consented to any other
amendment unless, within 30 days from the date we mail the amendment, you
notify us in writing that you do not consent.
8.09 Withdrawals: All requests for withdrawal shall be in writing on a form
provided by or acceptable to us. The method of distribution must be
specified in writing. The tax identification number of the recipient must
be provided to us before we are obligated to make a distribution.
Any withdrawals shall be subject to all applicable tax and other laws and
regulations including possible early withdrawal penalties and withholding
requirements.
8.10 Required Minimum Distributions: We reserve the right to elect whether or
not life expectancies will be recalculated in connection with required
minimum distributions from your IRA, provided, however, that we give you
notice of our election. Alternatively, we may allow you to make such an
election.
As described in Article IV, Section 3, of this Agreement, you may make an
election to begin receiving payments from your IRA in a manner that
satisfies the required minimum distribution rules no later than April 1st
of the year following the year you reach age 70 1/2. (This is called the
"required beginning date.") If you fail to make such an election by your
required beginning date, we can, at our complete and sole discretion, do
any one of the following:
. make no payment until you give us a proper payment request;
. pay your entire IRA to you in a single sum payment; or
. calculate your required minimum distribution from your IRA each year
based on your single life expectancy (not recalculated) and pay those
distributions to you until you direct otherwise.
7
<PAGE>
We will not be liable for any penalties or taxes related to your failure to
take a distribution.
8.11 Transfers From Other Plans: We can receive amounts transferred to this IRA
from the custodian or trustee of another IRA. In addition, we can accept
direct rollovers of eligible rollover distributions from employer plans as
permitted by the Code. We reserve the right not to accept any transfer or
direct rollover.
8.12 Liquidation of Assets: We have the right to liquidate assets in your IRA if
necessary to make distributions or to pay fees, expenses or taxes properly
chargeable against your IRA. If you fail to direct us as to which assets to
liquidate, we will decide in our complete and sole discretion and you agree
not to hold us liable for any adverse consequences that result from our
decision.
8.13 Restrictions On The Fund: Neither you nor any beneficiary may sell,
transfer or pledge any interest in your IRA in any manner whatsoever,
except as provided by law or this Agreement.
The assets in your IRA shall not be responsible for the debts, contracts or
torts of any person entitled to distributions under this Agreement.
8.14 What Law Applies: This Agreement is subject to all applicable Federal and
State laws and regulations. If it is necessary to apply any State law to
interpret and administer this Agreement, the law of our domicile shall
govern.
If any part of this Agreement is held to be illegal or invalid, the
remaining parts shall not be affected. Neither your nor our failure to
enforce at any time or for any period of time any of the provisions of this
Agreement shall be construed as a waiver of such provisions, or your right
or our right thereafter to enforce each and every such provision.
8.15 Arbitration Disclosures:
* Arbitration is final and binding on the parties.
* The parties are waiving their right to seek remedies in court, including
the right to jury trial.
* Pre-arbitration discovery is generally more limited than and different
from court proceedings.
* The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification
of rulings by the arbitrators is strictly limited.
* The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities industry.
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ARBITRATION--Customer agrees, and by carrying an account for customer
broker agrees that all controversies which may arise between us prior to,
on or subsequent to the date of the signed agreement shall be determined by
arbitration. Any arbitration under the signed agreement shall be conducted
pursuant to the federal arbitration act and the laws of the state of
Illinois, before the American arbitration forum, or before the New York
Stock Exchange, Inc. or an arbitration forum provided by any other exchange
of which the broker is a member, the National Association of Securities
Dealers, Inc. or any self-regulatory organization governing the broker in
accordance and with the rules then in effect of the selected organization.
The customer may elect one of the organizations (Forum) stated above, but
if the customer fails to make that election, by registered letter or
telegram addressed to the broker at the broker's main office, before the
expiration of ten days after receipt of a written request from the broker
to make that election, then the broker may make that election. The award of
the arbitrators, or the majority of them shall be final, and judgment upon
the award rendered may be entered in any court, state or federal, having
jurisdiction.
No person shall bring a putative or certified class action to arbitration,
nor seek to enforce any pre-dispute arbitration agreement against any
person who has initiated in court a putative class action; or who is a
member of a putative class who has not opted out of the class with respect
to any claims encompassed by the putative class action until: (i) the class
certification is denied; or (ii) the class is decertified; or (iii)
customer is excluded from the class by the court. Such forbearance to
enforce an agreement to arbitrate shall not constitute a waiver of any
rights under this agreement except to the extent stated here in. By signing
the agreement customer acknowledges that the customer has received and read
a copy of this agreement.
------------
INSTRUCTIONS
------------
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
NOTE: Users of the October 1992 revision of Form 5305-A are not required to use
the January 1998 revision of the form.
Form 5305-A is a model Custodial account agreement that meets the requirements
of Section 408(a) and has been automatically approved by the IRS. An individual
retirement account (IRA) is established after the form is fully executed by both
the individual (Depositor) and
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the Custodian and must be completed no later than the due date of the
individual's income tax return for the tax year (without regard to extensions).
This account must be created in the United States for the exclusive benefit of
the Depositor or his or her Beneficiaries.
Individuals may rely on regulations for Tax Reform Act of 1986 to the extent
specified in those regulations.
Do not file Form 5305-A with the IRS. Instead, keep it for your records.
For more information on IRAs, including the required disclosures the Custodian
must give the Depositor, see Pub. 590, Individual Retirement Arrangements
(IRAs).
DEFINITIONS
Custodian: The Custodian must be a bank or savings and loan association, as
defined in Section 408(n), or any person who has the approval of the IRS to act
as Custodian.
Depositor: The Depositor is the person who establishes the Custodial account.
IDENTIFYING NUMBER
The Depositor's social security number will serve as the identification number
of his or her IRA. An employer identification number (EIN) is required only for
an IRA for which a return is filed to report unrelated business taxable income.
An EIN is required for a common fund created for IRAs.
IRA FOR NONWORKING SPOUSE
Form 5305-A may be used to establish the IRA Custodial account for a nonworking
spouse.
Contributions to an IRA Custodial account for a nonworking spouse must be made
to a separate IRA Custodial account established by the nonworking spouse.
---------------------
SPECIFIC INSTRUCTIONS
---------------------
Article IV: Distributions made under this Article may be made in a single sum,
periodic payment, or a combination of both. The distribution option should be
reviewed in the year the Depositor reaches age 70 1/2 to ensure that the
requirements of Section 408(a)(6) have been met.
Article VIII: Article VIII and any that follow it may incorporate additional
provisions that are agreed to by the Depositor and Custodian to complete the
Agreement. They may include, for example, definitions, investment powers, voting
rights, exculpatory provisions, amendment and termination, removal of the
Custodian, Custodian's fees, State law requirements, beginning date of
distributions, accepting only cash, treatment of excess contributions,
prohibited transactions with the Depositor, etc. Use additional pages if
necessary and attach them to this form.
NOTE: Form 5305-A may be reproduced and reduced in size.
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DISCLOSURE STATEMENT
RIGHT TO REVOKE YOUR IRA
If you receive this Disclosure Statement at the time you establish your IRA, you
have the right to revoke your IRA within seven (7) days of its establishment. If
revoked, you are entitled to a full return of the contribution you made to your
IRA. The amount returned to you would not include an adjustment for such items
as sales commissions, administrative expenses, or fluctuation in market value.
You may make this revocation only by mailing or delivering a written notice to
the Custodian at the address listed on the Application.
If you send your notice by first class mail, your revocation will be deemed
mailed as of the date of the postmark.
If you have any questions about the procedure for revoking your IRA, please call
the Custodian at the telephone number listed on the Application.
REQUIREMENTS OF AN IRA
A. Cash Contributions - Your contribution must be in cash, unless it is a
rollover contribution.
B. Maximum Contribution - The total amount you may contribute to an IRA for any
taxable year cannot exceed the lesser of $2,000 or 100 percent of your
compensation. If you also maintain a Roth IRA, the maximum contribution to
your Traditional IRAs (i.e., IRAs subject to the limits of Internal Revenue
Code (IRC) Sections 408(a) or 408(b)) is reduced by any contributions you
make to your Roth IRA. Your total annual contribution to all Traditional IRAs
and Roth IRAs cannot exceed the lesser of $2,000 or 100 percent of your
compensation.
C. Nonforfeitability - Your interest in your IRA is nonforfeitable.
D. Eligible Custodians - The Custodian of your IRA must be a bank, savings and
loan association, credit union, or a person approved by the Secretary of the
Treasury.
E. Commingling Assets - The assets of your IRA cannot be commingled with other
property except in a common trust fund or common investment fund.
F. Life Insurance - No portion of your IRA may be invested in life insurance
contracts.
G. Collectibles - You may not invest the assets of your IRA in collectibles
(within the meaning of Internal Revenue Code (IRC) Section 408(m)). A
collectible is defined as any work of art, rug or antique, metal or gem,
stamp or coin, alcoholic beverage, or other tangible personal property
specified by the Internal
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Revenue Service. However, specially minted United States gold and silver
bullion coins and certain state-issued coins are permissible investments.
Beginning January 1, 1998, platinum coins and certain gold, silver, platinum
or palladium bullion (as described in IRC Section 408(m)(3)) are also
permitted as IRA investments.
H. Required Minimum Distributions - You are required to take minimum
distributions from your IRA at certain times in accordance with Proposed
Treasury Regulations Section 1.408-8. Below is a summary of the IRA
distribution rules.
1. You are required to take a minimum distribution from your IRA for the year
in which you reach age 70 1/2 and for each year thereafter. You must take
your first payout by your required beginning date, April 1 of the year
following the year you attain age 70 1/2. The minimum distribution for any
taxable year is equal to the amount obtained by dividing the account
balance at the end of the prior year (less any required distribution taken
between January 1 and April 1 of the year following the year you attain
age 70 1/2) by the joint life expectancy of you and your designated
beneficiary. If you have not designated a beneficiary for your IRA by your
required beginning date, your single life expectancy will be used.
2. Your single or joint life expectancy is determined by using the IRS unisex
life expectancy tables. You can find these tables in Treasury Regulations
Section 1.72-9.
We will allow you to elect whether or not to recalculate your life
expectancies. If you do not make an election, your life expectancies will
not be recalculated.
You may choose (within the limits set forth in the distribution rules and
our life expectancy recalculation policy) how you want your required
minimum distributions structured. You must make your payment elections no
later than April 1 following your 70 1/2 year. If you do not make an
election by that date, we may do any one of the following:
(a) make no payment until you give us a proper payout request,
(b) pay your entire IRA to you in a single sum payment, or
(c) determine your required minimum distribution each year based on your
single life expectancy (not recalculated) and pay those distributions
to you until you direct otherwise.
3. If you name someone other than your spouse as your beneficiary, and your
beneficiary is more
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than 10 years younger than you, your required minimum distributions must
satisfy the Minimum Distribution Incidental Benefit (MDIB) rule. The MDIB
rule generally requires that your required minimum distributions be
calculated as if your beneficiary were exactly 10 years younger than you.
4. If you die,
(a) on or after your required beginning date, distributions must be made
to your beneficiary or beneficiaries at least as rapidly as under the
method being used to determine minimum distributions as of the date of
your death.
(b) before your required beginning date, the entire amount remaining in
your account will, at the election of your beneficiary or
beneficiaries, either
(i) be distributed by December 31 of the year containing the fifth
anniversary of your death, or
(ii) be distributed in equal or substantially equal payments over the
life or life expectancy of your designated beneficiary or
beneficiaries.
Your beneficiary or beneficiaries must elect either option (i) or (ii)
by December 31 of the year following the year of your death. If no
election is made, distribution will be made in accordance with (ii) if
the beneficiary is your surviving spouse, and in accordance with (i)
if your beneficiary is not your surviving spouse. In the case of
distributions under (ii), distributions must commence by December 31
of the year following the year of your death. If your spouse is the
beneficiary, distributions need not commence until December 31 of the
year you would have attained age 70 1/2, if later.
INCOME TAX CONSEQUENCES OF ESTABLISHING AN IRA
A. IRA DEDUCTIBILITY - If you have not yet reached the year in which you attain
age 70 1/2 and have earned income from services rendered, you may make an IRA
contribution of the lesser of 100 percent of compensation or $2,000. However,
the amount of the contribution for which you may take a tax deduction will
depend upon whether you (or, in some cases, your spouse) are an active
participant in an employer-maintained retirement plan. If you are not an
active participant, your IRA contribution will be totally deductible. If you
are an active participant, the deductibility of your contribution will depend
on your modified adjusted gross income (MAGI) for the tax year for which the
contribution was made. Modified adjusted gross income (MAGI) is determined
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on your tax return using your adjusted gross income but disregarding any
deductible IRA contribution.
Definition of Active Participant - Generally, you will be an active
participant if you are covered by one or more of the following employer-
maintained retirement plans:
1. a qualified pension, profit sharing, 401(k), or stock bonus plan;
2. a qualified annuity plan of an employer;
3. a simplified employee pension (SEP) plan;
4. a retirement plan established by the Federal government, a State, or a
political subdivision (except certain unfunded deferred compensation
plans under IRC Section 457);
5. a tax sheltered annuity for employees of certain tax-exempt
organizations or public schools;
6. a plan meeting the requirements of IRC Section 501(c)(18);
7. a qualified plan for self-employed individuals (H.R. 10 or Keogh Plan);
and
8. a SIMPLE IRA plan or a SIMPLE 401(k) plan.
If you do not know whether your employer maintains one of these plans or
whether you are an active participant in it, check with your employer and
your tax advisor. Also, the Form W-2 (Wage and Tax Statement) that you
receive at the end of the year from your employer will indicate whether
you are an active participant.
If you are an active participant and are single, the deductible amount of
your contribution is determined as follows: (1) take the Phase-out Maximum
for the applicable year (specified below) and subtract your MAGI, (2)
multiply the difference by .2. For example, if your 1998 MAGI is $35,000,
your maximum deductible contribution is $1,000 (the 1998 Phase-out Maximum
of $40,000 minus your MAGI of $35,000, multiplied by .2). You must round
the resulting number to the next highest $10 if the number is not a
multiple of 10.
If you are an active participant, are married and you file a joint tax
return, the deductible amount of your contributions is determined as
follows: (1) take the Phase-out Maximum for the applicable year (specified
below) and subtract your MAGI, (2) multiply the difference by .2.
(Multiply the difference between the Phase-out Maximum and your MAGI by .1
beginning in 2007.) For example, if your MAGI in 1998 is $55,000, your
maximum deductible contribution is $1,000: [($60,000 minus $55,000)
multiplied by .2]. You must round the resulting number to the next highest
$10 if the number is not a multiple of 10.
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<TABLE>
<CAPTION>
Joint Filers Single Taxpayers
Tax Year Phase-out Maximum Phase-out Maximum
- ------------------------------------------------------------------------------
<S> <C> <C>
1997 $ 50,000 $35,000
1998 $ 60,000 $40,000
1999 $ 61,000 $41,000
2000 $ 62,000 $42,000
2001 $ 63,000 $43,000
2002 $ 64,000 $44,000
2003 $ 70,000 $50,000
2004 $ 75,000 $55,000
2005 $ 80,000 $60,000
2006 $ 85,000 $60,000
2007 $100,000 $60,000
- ------------------------------------------------------------------------------
</TABLE>
If you are married filing jointly and are not an active participant in an
employer-maintained retirement plan, but are married to someone who is an
active participant, your maximum deductible contribution is determined by
taking $160,000 minus your MAGI and multiplying the result by .2 (subject to
the maximum combined annual contribution limit for Traditional and Roth IRAs
of the lesser of $2,000 or 100 percent of earned income).
B. TAX-DEFERRED EARNINGS - The investment earnings of your IRA are not subject
to federal income tax until distributions are made (or, in certain instances,
when distributions are deemed to be made).
C. NONDEDUCTIBLE CONTRIBUTIONS - You may make nondeductible contributions to
your IRA to the extent that deductible contributions are not allowed. The sum
of your deductible and nondeductible IRA contributions cannot exceed your
contribution limit (the lesser of $2,000 or 100 percent of compensation). You
may elect to treat deductible IRA contributions as nondeductible
contributions.
If you make nondeductible contributions for a particular tax year, you must
report the amount of the nondeductible contribution on your federal income
tax return (using IRS Form 8606).
If you overstate the amount of designated nondeductible contributions for any
taxable year, you are subject to a $100 penalty unless reasonable cause for
the overstatement can be shown. Failure to file any form required by the IRS
to report nondeductible contributions (e.g., IRS Form 8606) will result in a
$50 per failure penalty.
D. TAXATION OF DISTRIBUTIONS - The taxation of IRA distributions depends on
whether or not you have ever made nondeductible IRA contributions. If you
have only made deductible contributions, any IRA distribution will be fully
included in income.
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If you have ever made nondeductible contributions to any IRA, the following
formula must be used to determine the amount of any IRA distribution excluded
from income:
(Aggregate Nondeductible Contributions)
x (Amount Withdrawn) = Amount Excluded From Income
--------------------
Aggregate IRA Balance
NOTE: Aggregate nondeductible contributions include all nondeductible
contributions made by you through the end of the year of the distribution
(which have not previously been withdrawn and excluded from income). Also
note that aggregate IRA balance includes the total balance of all of your
IRAs as of the end of the year of distribution and any distributions
occurring during the year.
E. ROLLOVERS - Your IRA may be rolled over to an IRA of yours, or may receive
rollover contributions, provided that all of the applicable rollover rules
are followed. Rollover is a term used to describe a tax-free movement of cash
or other property to your IRA from any of your IRAs, or from your employer's
Qualified Retirement Plan or Tax Sheltered Annuity. SIMPLE IRA funds may not
be rolled to your IRA during the first two years you participate in your
employer's SIMPLE IRA plan. The rollover rules are generally summarized
below. These transactions are often complex. If you have any questions
regarding a rollover, please see a competent tax advisor.
1. IRA to IRA Rollovers - Funds distributed from your IRA may be rolled over
to an IRA of yours if the requirements of IRC Section 408(d)(3) are met. A
proper IRA to IRA rollover is completed if all or part of the distribution
is rolled over not later than 60 days after the distribution is received.
You may not have completed another IRA to IRA rollover from the
distributing IRA during the 12 months preceding the date you receive the
distribution. Further, you may roll the same dollars or assets only once
every 12 months.
2. Qualified Plan (or Tax-Sheltered Annuity) to IRA Rollovers - Effective for
qualified plan distributions received after January 1, 1993, you may roll
over, directly or indirectly, any eligible rollover distribution. An
eligible rollover distribution is defined generally as any distribution
from a qualified plan (other than distributions to nonspouse
beneficiaries) unless it is part of certain series of substantially equal
periodic payments, after-tax dollars or a required minimum distribution.
To qualify as a rollover, your eligible rollover distribution must be
rolled over to your IRA no later than 60 days after you receive it.
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If you elect to receive your rollover distribution prior to placing it in
an IRA, thereby conducting an indirect rollover, your plan administrator
will generally be required to withhold 20 percent of your distribution as
a prepayment of income taxes. When completing the rollover, you may make
up the amount withheld, out of pocket, and roll over the full amount
distributed from your qualified plan balance, if you so choose. To qualify
as a rollover, your eligible rollover distribution must be rolled over to
your IRA not later than 60 days after you receive it. Alternatively, you
may claim the withheld amount as income and pay the applicable income tax
and, if you are under age 59 1/2, the 10 percent early distribution
penalty (unless an exception to the penalty applies).
As an alternative to the indirect rollover, your employer generally must
give you the option of directly rolling your qualified plan balance over
to an IRA. If you elect the direct rollover option, your eligible rollover
distribution will be paid directly to the IRA (or other qualified plan)
that you designate. The 20 percent withholding requirements do not apply
to direct rollovers.
If you place your rollover contribution in a separate (i.e., conduit) IRA
plan which holds just those dollars, you preserve the right to later roll
the money originating from the qualified plan into another qualified plan.
3. Traditional Ira to Roth Ira Rollovers - If your adjusted gross income is
not more than $100,000, you are eligible to roll over (or convert) all or
any portion of your existing Traditional IRA(s) into your Roth IRA(s). The
amount of the rollover from your Traditional IRA to your Roth IRA shall be
treated as a distribution for income tax purposes and is includible in
your gross income (except for any nondeductible contributions). Although
the rollover amount is generally included in income, the 10 percent early
distribution penalty shall not apply to rollovers or conversions from a
Traditional IRA to a Roth IRA, regardless of whether you qualify for any
exceptions to the 10 percent penalty.
If you roll over assets from your Traditional IRA to your Roth IRA prior
to January 1, 1999, you may spread the amount of the distributions which
must be included in your gross income ratably over a four year period
beginning with the year in which the payment or distribution is made.
4. Written Election - At the time you make a proper rollover to an IRA, you
must designate to the Custodian, in writing, your election to treat that
con-
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<PAGE>
tribution as a rollover. Once made, the rollover election is irrevocable.
F. CARRYBACK CONTRIBUTIONS - A contribution is deemed to have been made on the
last day of the preceding taxable year if you make a contribution by the
deadline for filing your income tax return (not including extensions), and
you designate that contribution as a contribution for the preceding taxable
year. For example, if you are a calendar year taxpayer and you make your IRA
contribution on or before April 15, your contribution is considered to have
been made for the previous tax year if you designated it as such.
LIMITATIONS AND RESTRICTIONS
A. SEP PLANS - Under a Simplified Employee Pension (SEP) Plan that meets the
requirements of IRC Section 408(k), your employer may make contributions to
your IRA. Your employer is required to provide you with information which
describes the terms of your employer's SEP Plan.
B. SPOUSAL IRA - If you are married, you may make payments to an IRA established
for the benefit of your spouse. Your spouse must not have attained age 70 1/2
in that year, or any prior year, even if you are age 70 1/2 or older. You
must file a joint tax return for the year for which the contribution is made.
The amount you may contribute to your IRA and your spouse's IRA is the lesser
of $4,000 or 100 percent of your combined compensation. However, you may not
contribute more than $2,000 to any one IRA.
C. DEDUCTION OF ROLLOVERS AND TRANSFERS - A deduction is not allowed for
rollover or transfer contributions.
D. ESTATE TAX EXCLUSION - The $100,000 federal estate tax exclusion previously
available has been repealed for individuals dying after 12/31/84. No
exclusion will be allowed for individuals dying after that date. Transfers of
your IRA assets to a named beneficiary made during your life and at your
request or because of your failure to instruct otherwise, may be subject to
federal gift tax under IRC Section 2501 if made after October 22, 1986.
E. SPECIAL TAX TREATMENT - Capital gains treatment and the favorable five or ten
year forward averaging tax authorized by IRC Section 402 do not apply to IRA
distributions.
F. INCOME TAX TREATMENT - Any withdrawal from your IRA, except a direct
transfer, is subject to federal income tax withholding. You may, however,
elect not to have withholding apply to your IRA withdrawal. If withholding is
applied to your with-
18
<PAGE>
drawal, not less than 10 percent of the amount withdrawn must be withheld.
G. PROHIBITED TRANSACTIONS - If you or your beneficiary engage in a prohibited
transaction with your IRA, as described in IRC Section 4975, your IRA will
lose its tax-exempt status and you must include the value of your account in
your gross income for that taxable year.
H. PLEDGING - If you pledge any portion of your IRA as collateral for a loan,
the amount so pledged will be treated as a distribution and will be included
in your gross income for that year.
FEDERAL TAX PENALTIES
A. EARLY DISTRIBUTION PENALTY - If you are under age 59 1/2 and receive an IRA
distribution, an additional tax of 10 percent will apply, unless made on
account of death, disability, a qualifying rollover, a direct transfer, the
timely withdrawal of an excess contribution; or if the distribution is part
of a series of substantially equal periodic payments (at least annual
payments) made over your life expectancy or the joint life expectancy of you
and your beneficiary. Payments made to pay medical expenses which exceed 7.5
percent of your adjusted gross income and distributions to pay for health
insurance by an individual who has separated from employment and who has
received unemployment compensation under a federal or state program for at
least 12 weeks are also exempt from the 10 percent tax. Beginning January 1,
1998, payments to cover certain qualified higher education expenses and
distributions for first-home purchases (up to life-time maximum of $10,000)
are exempt from the 10 percent tax. This additional tax will apply only to
the portion of a distribution which is includible in your income.
B. EXCESS CONTRIBUTION PENALTY - An excise tax of 6 percent is imposed upon any
excess contribution you make to your IRA. This tax will apply each year in
which an excess remains in your IRA. An excess contribution is any
contribution amount which exceeds your contribution limit, excluding rollover
and direct transfer amounts. Your contribution limit is the lesser of $2,000
or 100 percent of your compensation for the taxable year.
C. EXCESS ACCUMULATION PENALTY - One of the requirements listed above is that
you must take a minimum distribution for the year you attain age 70 1/2 and
for each year thereafter and that your designated beneficiary(ies) is
required to take certain minimum distributions after your death. An
additional tax of 50 percent is imposed on the amount of the required minimum
distribution which should have been taken
19
<PAGE>
but was not. This tax is referred to as an excess accumulation penalty tax.
D. EXCESS DISTRIBUTION PENALTY - Prior to 1997, you would have been taxed an
additional 15 percent on any amount received and included in income during a
calendar year from qualified retirement plans, tax-sheltered annuities and
IRAs which exceeded $112,500 (indexed each year for the cost of living).
Certain exceptions applied. If you received an excess distribution as
described above, your tax advisor could determine if these exceptions applied
to you. This tax is referred to as an excess distribution penalty. However,
this tax is repealed effective for all payouts received after December 31,
1996, as a result of the Taxpayer Relief Act of 1997.
E. EXCESS RETIREMENT ACCUMULATION PENALTY - In the past, your estate would have
paid additional federal estate tax if you died with an excess retirement
accumulation. An excess retirement accumulation existed if, at the time of
your death, the value of all your interests in qualified plans, tax-sheltered
annuities and IRAs exceeded the present value of an annuity with annual
payments of $112,500 (indexed each year for the cost of living), payable over
your life expectancy immediately before your death. This tax was referred to
as an excess retirement accumulation tax penalty. However, this tax is
repealed for estates of decedents dying after December 31, 1996, as a result
of the Taxpayer Relief Act of 1997.
F. PENALTY REPORTING - You must file Form 5329 with the Internal Revenue Service
to report and remit any penalties or excise taxes.
ARBITRATION
By signing the agreement, you agree that any controversy arising out of or
relating to your Account, any transaction made under your Account, or the
performance or breach of the Agreement shall be settled by arbitration as
described in Article 8.15 of the Custodial Agreement and paragraph twenty (20)
of the IRA account application.
OTHER
A. IRS PLAN APPROVAL - The Agreement used to establish this IRA has been
approved by the Internal Revenue Service. The Internal Revenue Service
approval is a determination only as to form. It is not an endorsement of the
plan in operation or of the investments offered.
B. ADDITIONAL INFORMATION - You may obtain further information on IRAs from your
District Office of the Internal Revenue Service. In particular, you may wish
to obtain IRS Publication 590, Individual Retirement Arrangements.
20
<PAGE>
IRA FINANCIAL DISCLOSURE
You may direct the investment of your funds within this IRA into any investment
instrument offered by or through the Custodian. The Custodian will not exercise
any investment discretion regarding your IRA, as this is solely your
responsibility.
The value of your IRA will be solely dependent upon the performance of any
investment instrument chosen by you to fund your IRA. Therefore, no projection
of the growth of your IRA can reasonably be shown or guaranteed.
Terms and conditions of the IRA which affect your investment decisions are
listed below.
INVESTMENT OPTIONS
You choose the investments which will fund your IRA. Your investment choices
include stocks, bonds, mutual funds, CD's or other investments offered by the
Custodian.
Investment Fees and Charges - There are certain fees and charges connected with
the investments you may select for your IRA. These fees and charges may include
sales commissions, investment management fees, distribution fees, set-up fees,
maintenance fees and surrender or termination fees. To find out what fees apply,
read the prospectus or contract which will describe the terms of the investment
you choose.
Earnings - The method for computing and allocating annual earnings (interest,
dividends, etc.) on your investments will vary with the nature and issuer of the
investment chosen. Please refer to the prospectus or contract of the investments
of your choice for the methods used for computing and allocating annual
earnings.
FEES FOR MAINTAINING YOUR IRA
There may be certain fees and charges connected with the IRA itself. These may
include an opening fee, annual fee or closing fee. Please refer to the Fee
Schedule and IRA Plan Agreement for further information.
We reserve the right to change any of the above fees after notice to you, as
provided in your IRA Plan Agreement.
<PAGE>
[LOGO] Wayne Hummer
Investments LLC
300 South Wacker Drive
Chicago, Illinois 60606-6607
800-621-4477 Toll-free
312-431-1700 Local
200 E. Washington Street
Appleton, Wisconsin 54911-5468
800-678-0833 Toll-free
920-734-1474 Local
Member
New York Stock Exchange
and other principal exchanges.
Member SIPC.
#127 (6/98) (C)1998 Universal Pension, Inc., Brainerd, MN 56401
<PAGE>
-------------
Roth IRA Plan
-------------
Agreement and
-------------
Disclosure
-------------
Statement
-------------
Wayne Hummer Investments LLC
[LOGO OF WH]
<PAGE>
To Cancel My Roth IRA Within 7 Days
I understand that I have the right to cancel my Roth IRA within 7 calendar days
of its establishment. I understand that to cancel my Roth IRA, I need to provide
Wayne Hummer Investments LLC with WRITTEN notice at the following address before
the seven-day period expires:
Wayne Hummer Investments LLC
Attn: IRA Department
300 S. Wacker Drive
Chicago, IL 60606
If my notice is sent by mail, it must be postmarked within the seven-day period.
My notice also needs to be properly addressed, with proper first class postage,
enclosed in an envelope, and sent by the U.S. mail to be considered mailed on
the postmarked date.
If I cancel my Roth IRA, Wayne Hummer Investments LLC will refund to me the
entire amount of the contributions I made before my revocation. There are no
penalties for revocation, but I will earn no interest on my contributions if I
revoke my Roth IRA.
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ROTH INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Form 5305-RA Under Section 408A of the Internal Revenue Code FORM (REV. JAN.
1998)
The Depositor whose name appears on the Application is establishing a Roth
Individual Retirement Account (Roth IRA) under section 408A to provide for his
or her retirement and for the support of his or her beneficiaries after death.
The Custodian named on the Application has given the Depositor the disclosure
statement required under Regulations section 1.408-6.
The Depositor has assigned the Custodial account sum indicated on the
Application.
The Depositor and the Custodian make the following agreement:
ARTICLE I.......................................................................
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except in
the case of a rollover contribution described in section 408A(e), the
Custodian will accept only cash contributions and only up to a maximum amount
of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will be
accepted.
ARTICLE II......................................................................
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single depositor, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married depositor who files jointly, between AGI of $150,000 and $160,000;
and for a married depositor who files separately, between $0 and $10,000. In the
case of a conversion, the Custodian will not accept IRA Conversion Contributions
in a tax year if the Depositor's AGI for that tax year exceeds $100,000 or if
the Depositor is married and files a separate return. Adjusted gross income is
defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
ARTICLE III.....................................................................
The Depositor's interest in the balance in the Custodial account is
nonforfeitable.
ARTICLE IV......................................................................
1. No part of the Custodial funds may be invested in life insurance contracts,
nor may the assets of the Custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning
of section 408(a)(5)).
2. No part of the Custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver, and platinum
coins, coins issued under the laws of any state, and certain bullion.
ARTICLE V.......................................................................
1. If the Depositor dies before his or her entire interest is distributed to him
or her and the Depositor's surviving spouse is not the sole beneficiary, the
entire remaining interest will, at the election of the Depositor or, if the
Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either:
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(a) Be distributed by December 31 of the year containing the fifth
anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary
starting no later than December 31 of the year following the year of the
Depositor's death.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. In the case of distribution method 1.(b) above, to determine the minimum
annual payment for each year, divide the Depositor's entire interest in the
Custodial account as of the close of business on December 31 of the preceding
year by the life expectancy of the designated beneficiary using the attained
age of the designated beneficiary as of the beneficiary's birthday in the
year distributions are required to commence and subtract 1 for each
subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date of
death, such spouse will then be treated as the Depositor.
ARTICLE VI......................................................................
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under sections 408(i) and
408A(d)(3)(E), Regulations sections 1.408-5 and 1.408-6, and under guidance
published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VII.....................................................................
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
ARTICLE VIII....................................................................
This agreement will be amended from time to time to comply with the provisions
of the Code, related regulations, and other published guidance. Other amendments
may be made with the consent of the persons whose signatures appear on the
Application.
ARTICLE IX......................................................................
9.01 Definitions: In this part of this Agreement (Article IX), the words "you"
and "your" mean the Depositor and the words "we," "us" and "our" mean the
Custodian and "Code" means the Internal Revenue Code.
9.02 Notices And Change Of Address: Any required notice regarding this Roth IRA
will be considered effective when we mail it to the last address of the
intended recipient which we have in our records. Any notice to be given to
us will be considered effective when we actually receive it. You must
notify us of any change of address.
9.03 Representations And Responsibilities: You represent and warrant to us that
any information you have given or will give us with respect to this
Agreement is complete and accurate. Further, you agree that any directions
you give us, or action you take will be proper under this Agreement and
that we are entitled to rely upon any such information or directions. We
shall not be responsible for losses of any kind that may result from your
directions to us or your actions or failures to act and you
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agree to reimburse us for any loss we may incur as a result of such
directions, actions or failures to act. We shall not be responsible for any
penalties, taxes, judgments or expenses you incur in connection with your
Roth IRA. We have no duty to determine whether your contributions or
distributions comply with the Code, regulations, rulings or this Agreement.
9.04 Service Fees: We have the right to charge an annual service fee or other
designated fees (for example, a transfer, rollover or termination fee) for
maintaining your Roth IRA. In addition, we have the right to be reimbursed
for all reasonable expenses we incur in connection with the administration
of your Roth IRA. We may charge you separately for any fees or expenses or
we may deduct the amount of the fees or expenses from the assets in your
Roth IRA at our discretion. We reserve the right to charge any additional
fee upon 30 days notice to you that the fee will be effective.
Any brokerage commissions attributable to the assets in your Roth IRA will
be charged to your Roth IRA. You cannot reimburse your Roth IRA for those
commissions.
9.05 Investment Of Amounts In The Roth IRA:
(a) DIRECTION OF INVESTMENT - You have exclusive responsibility for and
control over the investment of the assets of your Roth IRA. You shall
direct all investment transactions, including earnings and the proceeds
from securities sales. Your selection of investments, however, shall be
limited to publicly traded securities, mutual funds, money market
instruments and other investments that are obtainable by us and that we
are capable of holding in the ordinary course of our business. Selling
short, and/or executing purchases in an amount which is greater than
the available cash are each prohibited transactions.
In the absence of instructions from you or if your instructions are not
in a form acceptable to us, we shall hold any uninvested amounts in
cash and we shall have no responsibility to invest invested cash unless
and until directed by you.
All transactions shall be subject to any and all applicable Federal and
State laws and regulations and the rules, regulations, customs and
usages of any exchange, market or clearing house where the transaction
is executed and to our policies and practices.
After your death, your beneficiary(ies) shall be subject to the same
conditions that applied to you during your lifetime under this
Agreement (including, without limitation, section 9.03).
(b) OUR INVESTMENT POWERS AND DUTIES - We shall have no discretion to
direct any investment in your Roth IRA. We assume no responsibility for
rendering investment advice with respect to your Roth IRA. We shall
exercise the voting rights and other shareholder rights with respect to
securities in your Roth IRA but only in accordance with the
instructions you give to us.
(c) DELEGATION OF INVESTMENT RESPONSIBILITY - We may, but are not required
to, permit you to delegate your investment responsibility for your Roth
IRA to another party acceptable to us by giving written notice of your
delegation in a format we prescribe. We shall follow the direction of
any such party who is properly appointed and we shall be under no duty
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to review or question, nor shall we be responsible for, any of that party's
directions, actions or failures to act.
9.06 Beneficiaries: If you die before you receive all of the amounts in your
Roth IRA, payments from your Roth IRA will be made to your beneficiaries.
You may designate one or more persons or entities as beneficiary of your
Roth IRA. This designation can only be made on a form prescribed by us and
it will only be effective when it is filed with us during your lifetime.
Each beneficiary designation you file with us will cancel all previous
ones. The consent of a beneficiary shall not be required for you to revoke
a beneficiary designation. If you do not designate a beneficiary, your
estate will be the beneficiary.
If your surviving spouse is your sole beneficiary, your spouse will be
deemed to have treated your Roth IRA as his or her own Roth IRA and will
not be subject to the required minimum distribution rules. If the
beneficiary or beneficiaries include anyone other than your surviving
spouse, distributions must commence in accordance with Article V. If the
beneficiary payment election described in Article V is not made by December
31 of the year following the year of your death, the payment method
described as the 5 year rule will be deemed elected.
9.07 Termination: Either party may terminate this Agreement at any time by
giving written notice to the other. We can resign as Custodian at any time
effective 30 days after we mail written notice of our resignation to you.
Upon receipt of that notice, you must make arrangements to transfer your
Roth IRA to another financial organization. If you do not complete a
transfer of your Roth IRA within 30 days from the date we mail the notice
to you, we have the right to transfer your Roth IRA assets to a successor
Roth IRA trustee or custodian that we choose in our sole discretion or we
may pay your Roth IRA to you in a single sum. We shall not be liable for
any actions or failures to act on the part of any successor trustee or
custodian nor for any tax consequences you may incur that result from the
transfer or distribution of your assets pursuant to this section.
If this Agreement is terminated, we may hold back from your Roth IRA a
reasonable amount of money that we believe is necessary to cover any one or
more of the following:
* any fees, expenses or taxes chargeable against your Roth IRA;
* any penalties associated with the early withdrawal of any savings
instrument or other investment in your Roth IRA.
If our organization is merged with another organization (or comes under the
control of any Federal or State agency) or if our entire organization (or
any portion which includes your Roth IRA) is bought by another
organization, that organization (or agency) shall automatically become the
trustee or custodian of your Roth IRA, but only if it is the type of
organization authorized to serve as a Roth IRA trustee or custodian.
If we are required to comply with section 1.408-2(e) of the Treasury
Regulations and we fail to do so, or we are not keeping the records, making
the returns or sending the statements as are required by forms or
regulations, the IRS
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may, after notifying you, require you to substitute another trustee or
custodian.
9.08 Amendments: We have the right to amend this Agreement at any time. Any
amendment we make to comply with the Code and related regulations does not
require your consent. You will be deemed to have consented to any other
amendment unless, within 30 days from the date we mail the amendment, you
notify us in writing that you do not consent.
9.09 Withdrawals: All requests for withdrawal shall be in writing on a form
provided by or acceptable to us. The method of distribution must be
specified in writing. The tax identification number of the recipient must
be provided to us before we are obligated to make a distribution. Any
withdrawals shall be subject to all applicable tax and other laws and
regulations including possible early withdrawal penalties and withholding
requirements.
You are not required to take a distribution from your Roth IRA at age 70
1/2. At your death, however, your beneficiaries must begin taking
distributions in accordance with Article V and section 9.06 of this
Agreement. We will make no payouts to you from your Roth IRA until you
provide us with a written request for a distribution on a form provided by
or approved by us.
9.10 Transfers From Other Plans: We can receive amounts transferred or rolled
over to this Roth IRA from the trustee or custodian of another Roth IRA as
permitted by statute or applicable regulations.
However, if this Custodial account is designated as a Roth Conversion IRA,
no contributions other than IRA Conversion Contributions made during the
same tax year will be accepted.
9.11 Liquidation Of Assets: We have the right to liquidate assets in your Roth
IRA if necessary to make distributions or to pay fees, expenses or taxes
properly chargeable against your Roth IRA. If you fail to direct us as to
which assets to liquidate, we will decide in our complete and sole
discretion and you agree not to hold us liable for any adverse consequences
that result from our decision.
9.12 Restrictions On The Fund: Neither you nor any beneficiary may sell,
transfer or pledge any interest in your Roth IRA in any manner whatsoever,
except as provided by law or this Agreement.
The assets in your Roth IRA shall not be responsible for the debts,
contracts or torts of any person entitled to distributions under this
Agreement.
9.13 What Law Applies: This Agreement is subject to all applicable Federal and
State laws and regulations. If it is necessary to apply any State law to
interpret and administer this Agreement, the law of our domicile shall
govern.
If any part of this Agreement is held to be illegal or invalid, the
remaining parts shall not be affected. Neither your nor our failure to
enforce at any time or for any period of time any of the provisions of this
Agreement shall be construed as a waiver of such provisions, or your right
or our right thereafter to enforce each and every such provision.
9.14 ARBITRATION DISCLOSURES:
* ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
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* The parties are waiving their right to seek remedies in court, including
the right to jury trial.
* Pre-arbitration discovery is generally more limited than and different
from court proceedings.
* The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification
of rulings by the arbitrators is strictly limited.
* The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities industry.
ARBITRATION - Customer agrees, and by carrying an account for customer,
broker agrees, that all controversies which may arise between us prior to,
on or subsequent to the date of the signed agreement shall be determined by
arbitration. Any arbitration under the signed agreement shall be conducted
pursuant to the federal arbitration act and the laws of the state of
Illinois, before the American arbitration forum, or before the New York
Stock Exchange, Inc. or an arbitration forum provided by any other exchange
of which the broker is a member, the National Association of Securities
Dealers, Inc. or any self-regulatory organization governing the broker in
accordance and with the rules then in effect of the selected organization.
The customer may elect one of the organizations (Forum) stated above, but
if the customer fails to make that election, by registered letter or
telegram addressed to the broker's main office, before the expiration of
ten days after receipt of a written request from the broker to make that
election, then the broker may make that election. The award of the
arbitrators or the majority of them shall be final, and judgement upon the
award rendered may be entered in any court, state or federal, having
jurisdiction.
No person shall bring a putative or certified class action to arbitration,
nor seek to enforce any pre-dispute arbitration agreement against any
person who has initiated in court a putative class action; or who is a
member of a putative class who has not opted out of the class with respect
to any claims encompassed by the putative class action until: (i) the class
certification is denied; or (ii) the class is decertified; or (iii)
customer is excluded from the class by the court. Such forbearance to
enforce an agreement to arbitrate shall not constitute a waiver of any
rights under this agreement except to the extent stated here in. By signing
the agreement, customer acknowledges that the customer has received and
read a copy of this agreement.
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INSTRUCTIONS
------------
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
Form 5305-RA is a model Custodial account agreement that meets the requirements
of section 408A and has been automatically approved by the IRS. A Roth
individual retirement account (Roth IRA) is established after the form is fully
executed by both the individual (Depositor) and the Custodian and must be
completed no later than the due date of the individual's income tax return for
the tax year (without regard to extensions). This account must be created in the
United States for the exclusive benefit of the Depositor or his or her
beneficiaries.
Do not file Form 5305-RA with the IRS. Instead, keep it for your records.
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Unlike contributions to Traditional individual retirement arrangements,
contributions to a Roth IRA are not deductible from the Depositor's gross
income; and distributions after 5 years that are made when the Depositor is 59
1/2 years of age or older or on account of death, disability, or the purchase of
a home by a first-time homebuyer (limited to $10,000), are not includible in
gross income. For more information on Roth IRAs, including the required
disclosure the Depositor can get from the Custodian, see PUB. 590, Individual
Retirement Arrangements (IRAs).
This Roth IRA can be used by a Depositor to hold: (1) IRA Conversion
Contributions, amounts rolled over or transferred from another Roth IRA, and
annual cash contributions of up to $2,000 from the Depositor; or (2) if
designated as a Roth Conversion IRA (by checking the box on the Application),
only IRA Conversion Contributions for the same tax year.
To simplify the identification of funds distributed from Roth IRAs, Depositors
are encouraged to maintain IRA Conversion Contributions for each tax year in a
separate Roth IRA.
DEFINITIONS
Roth Conversion IRA: A Roth Conversion IRA is a Roth IRA that accepts only IRA
Conversion Contributions made during the same tax year.
IRA Conversion Contributions: IRA Conversion Contributions are amounts rolled
over, transferred, or considered transferred from a nonRoth IRA to a Roth IRA. A
nonRoth IRA is an individual retirement account or annuity described in section
408(a) or 408(b), other than a Roth IRA.
Custodian: The Custodian must be a bank or savings and loan association, as
defined in section 408(n), or any person who has the approval of the IRS to act
as Custodian.
Depositor: The Depositor is the person who establishes the Custodial account.
SPECIFIC INSTRUCTIONS
Article I: The Depositor may be subject to a 6-percent tax on excess
contributions if (1) contributions to other individual retirement arrangements
of the Depositor have been made for the same tax year, (2) the Depositor's
adjusted gross income exceeds the applicable limits in Article II for the tax
year, or (3) the Depositor's and spouse's compensation does not exceed the
amount contributed for them for the tax year. The Depositor should see the
Disclosure Statement or Pub. 590 for more information.
Article IX: Article IX and any that follow it may incorporate additional
provisions that are agreed to by the Depositor and Custodian to complete the
agreement. They may include, for example, definitions, investment powers, voting
rights, exculpatory provisions, amendment and termination, removal of the
Custodian, Custodian's fees, state law requirements, beginning date of
distributions, accepting only cash, treatment of excess contributions,
prohibited transactions with the Depositor, etc. Use additional pages if
necessary and attach them to the application.
NOTE: Form 5305-RA may be reproduced and reduced in size for adaption to
passbook purposes.
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DISCLOSURE STATEMENT
RIGHT TO REVOKE YOUR ROTH IRA
If you receive this Disclosure Statement at the time you establish your Roth
IRA, you have the right to revoke your Roth IRA within seven (7) days of its
establishment. If revoked, you are entitled to a full return of the contribution
you made to your Roth IRA. The amount returned to you would not include an
adjustment for such items as sales commissions, administrative expenses, or
fluctuation in market value. You may make this revocation only by mailing or
delivering a written notice to the Custodian at the address listed on the
Application.
If you send your notice by first-class mail, your revocation will be deemed
mailed as of the date of the postmark.
If you have any questions about the procedure for revoking your Roth IRA, please
call the Custodian at the telephone number listed on the Application.
REQUIREMENTS OF A ROTH IRA
A. CASH CONTRIBUTIONS - Your contribution must be in cash, unless it is a
qualified rollover contribution.
B. MAXIMUM CONTRIBUTION - The total amount you may contribute to a Roth IRA for
any taxable year cannot exceed the lesser of $2,000 or 100 percent of your
compensation. If you also maintain a Traditional IRA (i.e., an IRA subject to
the limits of Internal Revenue Code (IRC) Sec. 408(a) or 408(b)) the maximum
contribution to your Roth IRA is reduced by any contributions you make to
your Traditional IRA. Your total annual contribution to all Traditional IRAs
and Roth IRAs cannot exceed the lesser of $2,000 or 100 percent of your
compensation.
Your Roth IRA contribution is further limited if your adjusted gross income
(AGI) exceeds $150,000 and you are a married individual filing jointly
($95,000 for single taxpayers). Married individuals filing jointly with AGI
which exceeds $160,000 may not fund a Roth IRA. Married individuals filing
separately with AGI exceeding $10,000 may not fund a Roth IRA. Single
individuals with AGI exceeding $110,000 may not fund a Roth IRA.
If you are married filing jointly and your AGI is between $150,000 and
$160,000, your maximum Roth IRA contribution is determined as follows: (1)
Subtract your AGI from $160,000, (2) divide the difference by $10,000, and
(3) multiply the result in step (2) by $2,000. For example, if your AGI is
$155,000, your maximum Roth IRA contribution is $1,000. This amount is
determined as follows: [($160,000 minus $155,000) divided by $10,000]
multiplied by $2,000.
If you are single and your AGI is between $95,000 and $110,000, your maximum
Roth IRA contribution is determined as follows: (1) Subtract your AGI from
$110,000, (2) divide the difference by $15,000, and (3) multiply the result
in step (2) by $2,000. For example, if your AGI is $98,000, your maximum Roth
IRA contribution is $1,600. This amount is determined as follows: [($110,000
minus $98,000) divided by $15,000] multiplied by $2,000.
Your Roth IRA contribution is not limited by your participation in a
retirement plan other than a Traditional IRA, as discussed above. In
addition, unlike Traditional IRAs, you may continue to fund a Roth IRA after
age 70 1/2 so long as you have earned income and your AGI is below the
maximum thresholds discussed above.
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C. NONFORFEITABILITY - Your interest in your Roth IRA is nonforfeitable.
D. ELIGIBLE CUSTODIANS - The Custodian of your Roth IRA must be a bank, savings
and loan association, credit union, or a person approved by the Secretary of
the Treasury.
E. COMMINGLING ASSETS - The assets of your Roth IRA cannot be commingled with
other property except in a common trust fund or common investment fund.
F. LIFE INSURANCE - No portion of your Roth IRA may be invested in life
insurance contracts.
G. COLLECTIBLES - You may not invest the assets of your Roth IRA in collectibles
(within the meaning of Internal Revenue Code (IRC) section 408(m). A
collectible is defined as any work of art, rug or antique, metal or gem,
stamp or coin, alcoholic beverage, or other tangible personal property
specified by the Internal Revenue Service. However, specially minted United
States gold and silver bullion coins and certain state-issued coins are
permissible investments. Platinum coins and certain gold, silver, platinum or
palladium bullion (as described in IRC Sec. 408(m)(3)) are also permitted as
Roth IRA investments.
H. BENEFICIARY PAYOUTS - If your surviving spouse is your sole beneficiary, your
spouse may treat your Roth IRA as his or her own Roth IRA and would not be
subject to the required minimum distribution rules. Your surviving spouse
will also be entitled to such additional beneficiary payment options as are
permitted under the law or related regulations. If the beneficiary or
beneficiaries include anyone other than your surviving spouse, the entire
amount remaining in your account will, at the election of your beneficiary or
beneficiaries, either
(a) be distributed by December 31 of the year containing the fifth
anniversary of your death, or
(b) be distributed in equal or substantially equal payments over the life
or life expectancy of your designated beneficiary or beneficiaries.
A nonspouse beneficiary or beneficiaries must elect either option (a) or (b)
by December 31 of the year following the year of your death. If no election
is made, distribution will be made in accordance with option (a).
INCOME TAX CONSEQUENCES OF ESTABLISHING A ROTH IRA
A. CONTRIBUTIONS NOT DEDUCTED - No deduction is allowed for Roth IRA
contributions, including transfers and rollover contributions.
B. TAX-DEFERRED EARNINGS - The investment earnings of your Roth IRA are not
subject to federal income tax as they accumulate in your Roth IRA. In
addition, distributions of your Roth IRA earnings will be free from federal
income tax if you take a qualified distribution, as discussed below.
C. TAXATION OF DISTRIBUTIONS - The taxation of a Roth IRA distribution depends
on whether the distribution is a qualified distribution or a nonqualified
distribution.
1. QUALIFIED DISTRIBUTIONS - Qualified distributions from your Roth IRA (both
the contributions and earnings) are not included in gross income. A
qualified distribution occurs when the assets have been in the Roth IRA
for five years and one of the following events occurs:
* attainment of age 59 1/2,
* disability,
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* the purchase of a first home, or
* death.
For contributory IRAs, the five-year period begins with the first year for
which you make a Roth IRA contribution. For example, if you make a
contribution to your Roth IRA for 1998, the five-year period will be
completed at the end of 2002. However, a separate five-year requirement
applies to each rollover contribution from a Traditional IRA. The five-
year period for these rollovers begins with the year in which the rollover
contribution is made.
2. NONQUALIFIED DISTRIBUTIONS - If you do not meet the requirements for a
qualified distribution, any earnings you withdraw from your Roth IRA will
be included in your gross income and, if you are under age 59 1/2, may be
subject to an early distribution penalty. However, when you take a
nonqualified distribution, your basis (the amounts you contributed to the
account) will generally be removed first. Therefore, your nonqualified
distributions will not be taxable to you until your withdrawals exceed the
amount of your contributions. Special rules may apply to the distribution
of conversion amounts.
D. NO REQUIRED MINIMUM DISTRIBUTIONS - You are not required to take distribution
from your Roth IRA at age 70 1/2 (as required for Traditional and SIMPLE
IRAs).
E. ROLLOVERS AND CONVERSIONS - Your Roth IRA may be rolled over to another Roth
IRA of yours, or may receive rollover contributions, provided that all of the
applicable rollover rules are followed. Rollover is a term used to describe a
tax-free movement of cash or other property to your Roth IRA from any of your
Roth or Traditional IRAs. The rollover rules are generally summarized below.
These transactions are often complex. If you have any questions regarding a
rollover, please see a competent tax advisor.
1. ROTH IRA TO ROTH IRA ROLLOVERS - Funds distributed from your Roth IRA may
be rolled over to a Roth IRA of yours if the requirements of IRC section
408(d)(3) are met. A proper Roth IRA to Roth IRA rollover is completed if
all or part of the distribution is rolled over not later than 60 days
after the distribution is received. You may not have completed another
Roth IRA to Roth IRA rollover from the distributing Roth IRA during the 12
months preceding the date you receive the distribution. Further, you may
roll the same dollars or assets only once every 12 months. Roth IRA assets
may not be rolled over to other types of IRAs (e.g., Traditional IRA,
SIMPLE IRA).
2. TRADITIONAL IRA TO ROTH IRA CONVERSIONS - Unless your adjusted gross
income is more than $100,000, or you are married filing a separate tax
return, you are eligible to roll over, transfer or convert all or any
portion of your existing Traditional IRA(s) into your Roth IRA(s). A
separate Roth Conversion IRA should generally be established to hold
conversion amounts. If your Roth IRA is designated as a Roth Conversion
IRA, the only permissible contributions are amounts converted from a
Traditional IRA during the same tax year. The amount of the conversion
from your Traditional IRA to your Roth IRA will be treated as a
distribution for income tax purposes and is includible in your gross
income (except for any nondeductible contributions). Although the
conversion amount is generally included in income, the 10 percent early
distribution penalty will not apply to
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rollovers or conversions from a Traditional IRA to a Roth IRA, regardless
of whether you qualify for any exceptions to the 10 percent penalty.
If you convert assets from your Traditional IRA to your Roth IRA prior to
January 1, 1999, you must include the taxable amount of the distribution
in your gross income ratably over a four year period beginning with 1998.
3. WRITTEN ELECTION - At the time you make a proper rollover to a Roth IRA,
you must designate to the Custodian, in writing, your election to treat
that contribution as a rollover. Once made, the rollover election is
irrevocable.
4. NO ROLLOVERS FROM EMPLOYER PLANS - You may not roll over distributions
from your employer's qualified retirement plan or 403(b) arrangement into
your Roth IRA.
F. CARRYBACK CONTRIBUTIONS - A contribution is deemed to have been made on the
last day of the preceding taxable year if you make a contribution by the
deadline for filing your income tax return (not including extensions), and
you designate that contribution as a contribution for the preceding taxable
year. For example, if you are a calendar year taxpayer and you make your Roth
IRA contribution on or before April 15, your contribution is considered to
have been made for the previous tax year if you designate it as such.
LIMITATIONS AND RESTRICTIONS
A. SPOUSAL ROTH IRA - If you are married, you may make payments to a Roth IRA
established for the benefit of your spouse. You must file a joint tax return
for the year for which the contribution is made.
The amount you may contribute to your Roth IRA and your spouse's Roth IRA is
the lesser of $4,000 or 100 percent of your combined compensation. However,
you may not contribute more than $2,000 to any one Roth IRA. Your
contribution may be further limited if your AGI exceeds the levels discussed
in the section titled Maximum Contribution.
B. ESTATE TAX EXCLUSION - The $100,000 federal estate tax exclusion previously
available has been repealed for individuals dying after December 31, 1984. No
exclusion will be allowed for individuals dying after that date. Transfers of
your Roth IRA assets to a named beneficiary made during your life and at your
request or because of your failure to instruct otherwise, may be subject to
federal gift tax under IRC section 2501 if made after October 22, 1986.
C. SPECIAL TAX TREATMENT - Capital gains treatment and the favorable five or ten
year forward averaging tax authorized by IRC section 402 do not apply to Roth
IRA distributions.
D. INCOME TAX TREATMENT - Any nonqualified withdrawal of earnings from your Roth
IRA, is subject to federal income tax withholding. You may, however, elect
not to have withholding apply to your Roth IRA withdrawal. If withholding is
applied to your withdrawal, not less than 10 percent of the amount withdrawn
must be withheld.
E. PROHIBITED TRANSACTIONS - If you or your beneficiary engage in a prohibited
transaction with your Roth IRA, as described in IRC section 4975, your Roth
IRA will lose its tax-exempt status and you must generally include
11
<PAGE>
the value of the earnings in your account in your gross income for that
taxable year.
F. PLEDGING - If you pledge any portion of your Roth IRA as collateral for a
loan, the amount so pledged will be treated as a distribution and may be
included in your gross income for that year to the extent it represents
earnings.
FEDERAL TAX PENALTIES
A. EARLY DISTRIBUTION PENALTY - If you are under age 59 1/2 and receive a
nonqualified Roth IRA distribution, an additional tax of 10 percent will
apply to the amount includible in income (i.e., the earnings), unless the
distribution is made on account of death, disability, a qualifying
rollover, a direct transfer, the timely withdrawal of an excess
contribution; or if the distribution is part of a series of substantially
equal periodic payments (at least annual payments) made over your life
expectancy or the joint life expectancy of you and your beneficiary.
Payments made to pay medical expenses which exceed 7.5 percent of your
adjusted gross income and distributions to pay for health insurance by an
individual who has separated from employment and who has received
unemployment compensation under a federal or state program for at least 12
weeks are also exempt from the 10 percent tax. Payments to cover certain
qualified education expenses and distributions for first-home purchases (up
to life-time maximum of $10,000) are exempt from the 10 percent tax. This
additional tax will apply only to the portion of a distribution which is
includible in your income.
B. EXCESS CONTRIBUTION PENALTY - An excise tax of 6 percent is imposed upon
any excess contribution you make to your Roth IRA. This tax will apply each
year in which an excess remains in your Roth IRA. An excess contribution is
any contribution amount which exceeds your contribution limit, excluding
rollover and direct transfer amounts. Your contribution limit is the lesser
of $2,000 or 100 percent of your compensation for the taxable year. Your
contribution may be further limited if your AGI exceeds the levels
discussed in the section titled Maximum Contribution.
C. EXCESS ACCUMULATION PENALTY - Unless your sole beneficiary is your
surviving spouse, your designated beneficiary(ies) is required to take
certain minimum distributions after your death. An additional tax of 50
percent is imposed on the amount of the required minimum distribution which
should have been taken but was not. This tax is referred to as an excess
accumulation penalty tax.
D. PENALTY REPORTING - You must file Form 5329 with the Internal Revenue
Service to report and remit any penalties or excise taxes.
ARBITRATION
By signing the agreement, you agree that any controversy arising out of or
relating to your Account, any transaction made under your Account, or the
performance or breach of the Agreement shall be settled by arbitration as
described in Article 9 of the Custodial Agreement and paragraph 20 of the Roth
IRA account application.
OTHER
A. IRS PLAN APPROVAL - The Agreement used to establish this Roth IRA has been
approved by the Internal Revenue Service. The Internal Revenue Service
approval is a determination only as to form. It is not an endorsement of
the plan in operation or of the investments offered.
12
<PAGE>
B. ADDITIONAL INFORMATION - You may obtain further information on Roth IRAs
from your District Office of the Internal Revenue Service. In particular,
you may wish to obtain IRS Publication 590, Individual Retirement
Arrangements (IRAs).
-----------------------------
ROTH IRA FINANCIAL DISCLOSURE
-----------------------------
You may direct the investment of your funds within this Roth IRA into any
investment instrument offered by or through the Custodian. The Custodian will
not exercise any investment discretion regarding your Roth IRA, as this is
solely your responsibility.
The value of your Roth IRA will be solely dependent upon the performance of any
investment instrument chosen by you to fund your Roth IRA. Therefore, no
projection of the growth of your Roth IRA can reasonably be shown or guaranteed.
Terms and conditions of the Roth IRA which affect your investment decisions are
listed below.
INVESTMENT OPTIONS
You choose the investments that will fund your Roth IRA. Your investment
choices include stocks, bonds, mutual funds, CDs or other investments offered by
the Custodian.
INVESTMENT FEES AND CHARGES - There are certain fees and charges connected with
the investments you may select for your Roth IRA. These fees and charges may
include sales commissions, investment management fees, distribution fees, set-up
fees, maintenance fee and surrender or termination fees. To find out what fees
apply, read the prospectus or contract which will describe the terms of the
investment you choose.
EARNINGS - The method for computing and allocating annual earnings (interest,
dividends, etc.) on your investments will vary with the nature and issuer of the
investment chosen. Please refer to the prospectus or contract of the investments
of your choice for the methods used for computing and allocating annual
earnings.
FEES FOR MAINTAINING YOUR ROTH IRA
There may be certain fees and charges connected with the Roth IRA itself. These
may include an opening fee, annual fee or closing fee. Please refer to the Fee
Schedule and Roth IRA Plan Agreement for further information.
We reserve the right to change any of the above fees after notice to you, as
provided in your Roth IRA Agreement.
13
<PAGE>
[Hummer logo]Wayne Hummer
Investments LLC
300 South Wacker Drive
Chicago, Illinois 60606-6607
800-621-4477 Toll-free
312-431-1700 Local
200 E. Washington Street
Appleton, Wisconsin 54911-5468
800-678-0833 Toll-free
920-734-1474 Local
Member
New York Stock Exchange
and other principal exchanges.
Member SIPC.
#6127 (6/98) (C) 1988 Universal Pensions, Inc., Brainerd, MN 56401
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