<PAGE>
REGISTRATION NO. 33-87498
811-8910
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. _____ [ ]
POST-EFFECTIVE AMENDMENT NO. 13 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 16 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
VINTAGE MUTUAL FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2203 GRAND AVENUE
DES MOINES, IOWA 50312-5338
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (515) 244-5426
DAVID W. MILES, PRESIDENT
VINTAGE MUTUAL FUNDS, INC.
2203 GRAND AVENUE
DES MOINES, IOWA 50312-5338
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS TO:
KATHLEEN K. CLARKE, ESQ. JOHN C. MILES, ESQ.
SEWARD & KISSEL LLP CLINE, WILLIAMS, WRIGHT, JOHNSON & OLDFATHER
1200 G STREET, N.W. 19TH FLOOR, 233 S. 13TH
WASHINGTON, DC 20005 LINCOLN, NEBRASKA 68508
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE 60 DAYS AFTER FILING
PURSUANT TO PARAGRAPH (a) (1) OF RULE 485 UNDER THE SECURITIES ACT OF 1933.
<PAGE>
FOR MORE INFORMATION ABOUT THE FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE UPON
REQUEST:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
Annual and Semi-Annual Reports to shareholders contain additional information on
each Fund's investments. In the Annual Report, you will find a discussion of the
market conditions and investment strategies that significantly affected each
Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Vintage Funds have an SAI, which contains more detailed information about
each Fund, including its operations and investment policies. The Funds' SAI is
incorporated by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
by contacting your broker or other financial intermediary, or by contacting the
Funds:
By mail: c/o Vintage Mutual Funds, Inc.
Dept. L-1392
Columbus, OH 43260-1392
By phone: For Information and Literature:
(800) 438-6375
By e-mail: [email protected]
By the Internet: www.VintageFunds.com
OR YOU MAY VIEW OR OBTAIN THESE DOCUMENTS FROM THE SEC:
In person: at the SEC's Public Reference Room
in Washington, D.C.
By phone: 1-800-SEC-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
The Vintage Funds may not be available in all states. Please contact the Funds
to determine if the Funds are available for sale in your state.
[LOGO]
VINTAGE MUTUAL FUNDS
PROSPECTUS
[Date]
GOVERNMENT ASSETS FUND
LIQUID ASSETS FUND
MUNICIPAL ASSETS FUND
VINTAGE LIMITED TERM BOND FUND
VINTAGE BOND FUND
VINTAGE INCOME FUND
VINTAGE MUNICIPAL BOND FUND
VINTAGE BALANCED FUND
VINTAGE EQUITY FUND
VINTAGE AGGRESSIVE GROWTH FUND
AS WITH OTHER MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INVESTMENT ADVISOR AND ADMINISTRATOR
Investors Management Group
2203 Grand Avenue
Des Moines, Iowa 50312
DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Cline, Williams, Wright, Johnson & Oldfather
1900 First Bank Building
Lincoln, Nebraska 68508
INDEPENDENT AUDITORS
McGladrey & Pullen, LLP
400 Locust Street, Ste. 640
Des Moines, Iowa 50309
<TABLE>
TABLE OF CONTENTS
<S> <C>
RISK/RETURN SUMMARY . . . . . . . . . . . . . . . . 2
- VINTAGE MONEY MARKET FUNDS . . . . . . . . . . 3
- VINTAGE BOND FUNDS . . . . . . . . . . . . . . 5
- VINTAGE BALANCED FUND. . . . . . . . . . . . . 9
- VINTAGE STOCK FUNDS. . . . . . . . . . . . . . 10
FEES AND EXPENSES OF THE FUNDS. . . . . . . . . . . 12
DESCRIPTION OF THE FUNDS. . . . . . . . . . . . . . 14
- GOVERNMENT ASSETS FUND . . . . . . . . . . . . 15
- LIQUID ASSETS FUND . . . . . . . . . . . . . . 15
- MUNICIPAL ASSETS FUND. . . . . . . . . . . . . 15
- VINTAGE LIMITED TERM BONDFUND. . . . . . . . . 16
- VINTAGE BOND FUND. . . . . . . . . . . . . . . 16
- VINTAGE INCOME FUND. . . . . . . . . . . . . . 17
- VINTAGE MUNICIPAL BOND FUND. . . . . . . . . . 17
- VINTAGE BALANCED FUND. . . . . . . . . . . . . 19
- VINTAGE EQUITY FUND. . . . . . . . . . . . . . 20
- VINTAGE AGGRESSIVE GROWTH FUND . . . . . . . . 20
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . 23
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . 25
- HOW THE FUNDS VALUE THEIR SHARES . . . . . . . 25
- HOW TO BUY SHARES. . . . . . . . . . . . . . . 25
- HOW TO EXCHANGE SHARES . . . . . . . . . . . . 26
- HOW TO SELL SHARES . . . . . . . . . . . . . . 27
- AUTO WITHDRAWAL PLAN . . . . . . . . . . . . . 28
- AUTOMATIC REDEMPTION . . . . . . . . . . . . . 28
DIVIDENDS, DISTRIBUTIONS, AND TAXES . . . . . . . . 29
DISTRIBUTION ARRANGEMENTS . . . . . . . . . . . . . 31
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . 33
FOR MORE INFORMATION ABOUT
THE FUNDS . . . . . . . . . . . . . . . . . .Back Cover
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information
about the Funds. You will find additional information
about the Funds after this summary. In this summary, we
will identify principal risks that apply to the Funds
such as the risk of market fluctuations, or market
risk, or the risk of changes in interest rates, or
interest rate risk. More detailed descriptions of these
and other principal risks of the Funds can be found
further back in the Prospectus.
The Risk/Return Summary includes a bar chart for each
Fund showing its annual returns and a table showing its
average annual returns. The bar chart and the table
provide an indication of the historical risk of an
investment in each Fund by showing:
- changes in the Fund's performance from year to year
over 10 years or, if less, the life of the Fund; and
- how the Fund's average annual returns for one, five,
and 10 years, or, if less, the life of the Fund,
compare to those of a broad based securities market
index.
A Fund's past performance, of course, does not
necessarily indicate how it will perform in the future.
OTHER IMPORTANT THINGS FOR YOU TO NOTE:
- You may lose money by investing in a Fund.
- An investment in a Fund is not a deposit in a bank
and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
-2-
<PAGE>
VINTAGE MONEY MARKET FUNDS
GOVERNMENT ASSETS FUND
LIQUID ASSETS FUND
MUNICIPAL ASSETS FUND
OBJECTIVES. The investment objectives of the Money
Market Funds are safety of principal and liquidity, and
to the extent consistent with these objectives, maximum
current income. The Municipal Assets Fund seeks current
income that is exempt from federal income taxes.
PRINCIPAL INVESTMENT STRATEGY. The Funds are "money
market funds" that seek to maintain a stable net asset
value of $1.00 per share. Each Fund pursues its
objectives by maintaining a portfolio of high-quality
money market securities.
PRINCIPAL RISKS. The principal risks of investing in
the Money Market Funds are interest rate risk and
credit risk.
BAR CHART AND PERFORMANCE INFORMATION
The bar charts and performance information provide an
indication of the historical risk of an investment in
the Funds.
You may obtain current yield information for any Fund
by calling 1-800-438-6375.
GOVERNMENT ASSETS [CHART]
FUND
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.70% 3.69% 5.39% 4.66% 4.77% 4.77%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 1.36% (quarter ending 6/30/95)
and the lowest return for a quarter was 0.66% (quarter
ending 3/31/93).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
--------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
--------------------------------------------------------------
Since
Inception
1 Year 5 Year (12/21/92)
--------------------------------------------------------------
<S> <C> <C> <C>
Government Assets-T 4.77% 4.65% 4.32%
--------------------------------------------------------------
</TABLE>
-3-
<PAGE>
LIQUID ASSETS FUND The annual returns in the bar chart are for the Fund's
Class S Shares.
[CHART]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.43% 7.60% 5.44% 3.40% 2.54% 3.58% 5.11% 4.54% 4.64% 4.41%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 2.15% (quarter ending 6/30/89)
and the lowest return for a quarter was 0.62% (quarter
ending 12/31/93).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
5 Year or
1 Year Since Inception 10 Year
----------------------------------------------------------------------
<S> <C> <C> <C>
Liquid Assets S 4.41% 4.46% 4.96%
----------------------------------------------------------------------
Liquid Assets S2 4.67% 4.84% N/A
----------------------------------------------------------------------
Liquid Assets T 4.91% 5.04% N/A
----------------------------------------------------------------------
Liquid Assets I 5.08% 5.26% N/A
----------------------------------------------------------------------
</TABLE>
MUNICIPAL ASSETS The annual returns in the bar chart are for the Fund's
FUND Class S Shares.
[CHART]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.43% 7.60% 5.44% 3.40% 2.54% 3.58% 5.11% 4.54% 4.64% 4.41%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 1.54% (quarter ending 6/30/89)
and the lowest return for a quarter was 0.36% (quarter
ending 3/31/94).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
5 Year or
1 Year Since Inception 10 Year
---------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Assets S 2.66% 2.62% 3.15%
---------------------------------------------------------------------
Municipal Assets T 2.90% 3.09% N/A
---------------------------------------------------------------------
Municipal Assets I 3.06% 3.31% N/A
---------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
VINTAGE BOND FUNDS
VINTAGE LIMITED OBJECTIVE. The Fund's investment objective is total
TERM BOND FUND return from a portfolio of limited-term fixed-income
securities.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests
primarily in a diversified portfolio of fixed-income
securities, including corporate debt securities, U.S.
Government securities, and mortgage-related securities.
The Fund normally invests more than 65% of its total
assets in fixed-income securities rated within the
three highest rating categories or, if unrated, of
comparable quality. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 1 to 4
years.
PRINCIPAL RISKS. The principal risks of investing in
the Fund are interest rate risk and credit risk. The
Fund's investments in mortgage-related securities have
prepayment risk, which is the risk that mortgage loans
will be prepaid when interest rates decline forcing the
Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related
securities may have significantly greater price and
yield volatility than traditional fixed-income
securities.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an
indication of the historical risk of an investment in
the Fund.
[CHART]
<TABLE>
<CAPTION>
1996 1997 1998
-----------------------
<S> <C> <C>
1.78% 6.70% 6.10%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 3.48% (quarter ending
12/31/95) and the lowest return for a quarter was
-1.64% (quarter ending 3/31/96).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
Since
Inception
1 Year (06/15/95)
----------------------------------------------------------------
<S> <C> <C>
Vintage Limited Term Bond 6.10% 5.55%
----------------------------------------------------------------
Merrill Lynch 1-5 Yr. Gov't/Corp. 7.68% 7.03%
----------------------------------------------------------------
Lehman Aggregate 8.42% 8.26%
----------------------------------------------------------------
</TABLE>
AN INDEX? An "index" is a formula used to measure the
performance of a particular part of the market and
compare against a Fund's performance. For example, the
Dow Jones Industrial Average is an index, gauging the
performance of 30 stocks the editors of the Wall Street
Journal consider to be central to our economy.
-5-
<PAGE>
VINTAGE BOND FUND OBJECTIVE. The Fund's investment objective is income
and capital appreciation, consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests
primarily in a diversified portfolio of fixed-income
securities, including corporate debt securities, U.S.
Government securities, and mortgage-related securities.
The Fund normally invests more than 65% of its total
assets in fixed-income securities rated within the
three highest rating categories or, if unrated, of
comparable quality. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 4 to 10
years.
PRINCIPAL RISKS. The principal risks of investing in
the Fund are interest rate risk and credit risk. The
Fund's investments in mortgage-related securities have
prepayment risk, which is the risk that mortgage loans
will be prepaid when interest rates decline forcing the
Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related
securities may have significantly greater price and
yield volatility than traditional fixed-income
securities.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an
indication of the historical risk of an investment in
the Fund.
[CHART]
<TABLE>
<CAPTION>
1996 1997 1998
-----------------------
<S> <C> <C>
2.40% 9.16% 7.83%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 5.00% (quarter ending
12/31/95) and the lowest return for a quarter was
-2.90% (quarter ending 3/31/96).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
-------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
Since
Inception
1 Year (07/07/95)
-------------------------------------------------------------
<S> <C> <C>
Vintage Bond 7.83% 7.31%
-------------------------------------------------------------
Lehman Aggregate 8.67% 8.33%
-------------------------------------------------------------
</TABLE>
AN INDEX? An "index" is a formula used to measure the
performance of a particular part of the market and
compare against a Fund's performance. For example, the
Dow Jones Industrial Average is an index, gauging the
performance of 30 stocks the editors of the Wall Street
Journal consider to be central to our economy.
-6-
<PAGE>
VINTAGE INCOME OBJECTIVE. The Fund's investment objective is current
FUND income, consistent with the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests
primarily in a diversified portfolio of fixed-income
securities, including mortgage-related securities, U.S.
Government securities, and corporate debt obligations.
The Fund normally invests more than 65% of its total
assets in fixed-income securities rated within the
three highest rating categories or, if unrated, of
comparable quality. The Fund maintains a
dollar-weighted average portfolio maturity of 4 to 10
years.
PRINCIPAL RISKS. The principal risks of investing in
the Fund are interest rate and credit risk. The Fund's
investments in mortgage-related securities have
prepayment risk, which is the risk that mortgage loans
will be prepaid when interest rates decline forcing the
Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related
securities may have significantly greater price and
yield volatility than traditional fixed-income
securities.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an
indication of the historical risk of an investment in
the Fund.
[CHART]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.02% -3.14% 14.50% 2.81% 7.14% 7.10%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 4.64% (quarter ending 6/30/95)
and the lowest return for a quarter was -2.27% (quarter
ending 3/31/94).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
Since
Inception
1 Year 5 Year (12/15/92)
----------------------------------------------------------------
<S> <C> <C> <C>
Vintage Income 7.10% 5.53% 6.14%
----------------------------------------------------------------
Lehman Int. Gov't/Corp. 8.42% 6.60% 7.05%
----------------------------------------------------------------
Lehman Aggregate 8.67% 7.27% 7.77%
----------------------------------------------------------------
</TABLE>
AN INDEX? An "index" is a formula used to measure the
performance of a particular part of the market and
compare against a Fund's performance. For example, the
Dow Jones Industrial Average is an index, gauging the
performance of 30 stocks the editors of the Wall Street
Journal consider to be central to our economy.
-7-
<PAGE>
VINTAGE OBJECTIVE. The Fund's investment objective is current
MUNICIPAL BOND income that is exempt from federal income taxes,
FUND consistent with the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests
primarily in a diversified portfolio of fixed-income
securities with income that is exempt from federal
income taxes and is not subject to the federal
alternative minimum tax. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 4 to 10
years.
PRINCIPAL RISKS. The principal risks of investing in
the Fund are interest rate risk and credit risk. The
Fund's investments in municipal income securities also
have the risk that special factors may adversely affect
the value of municipal securities and have a
significant effect on the value of the Fund's
investments. These factors include political or
legislative changes, uncertainties related to the tax
status of municipal securities or the rights of
investors in these securities.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an
indication of the historical risk of an investment in
the Fund.
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
-----------------------------------------
<S> <C> <C> <C> <C>
-5.37% 15.09% 3.05% 6.59% 4.83%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 6.39% (quarter ending 3/31/95)
and the lowest return for a quarter was -4.39% (quarter
ending 3/31/94).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
Since
Inception
1 Year 5 Year (02/16/93)
-------------------------------------------------------------------
<S> <C> <C> <C>
Vintage Municipal Bond 4.83% 4.63% 5.38%
-------------------------------------------------------------------
Merrill Lynch Int. Muni Bond 6.27% 5.84% 6.23%
-------------------------------------------------------------------
</TABLE>
AN INDEX? An "index" is a formula used to measure the
performance of a particular part of the market and
compare against a Fund's performance. For example, the
Dow Jones Industrial Average is an index, gauging the
performance of 30 stocks the editors of the Wall Street
Journal consider to be central to our economy.
-8-
<PAGE>
VINTAGE BALANCED FUND
VINTAGE OBJECTIVE. The Fund's investment objective is long-term
BALANCED FUND growth of capital and income.
PRINCIPAL INVESTMENT STRATEGIES. The Fund invests
primarily in a diversified portfolio of equity
securities and fixed-income securities. The Fund may
invest up to 75% of its total assets in equity
securities. The Fund normally invests at least 25% of
its total assets in fixed-income securities, of which
65% will be invested in fixed-income securities rated
in the three highest rating categories or, if unrated,
of comparable quality. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 4 to 10
years for its investments in fixed-income securities.
PRINCIPAL RISKS. The principal risks of investing in
the Fund are market risk, interest rate risk, and
credit risk. The Fund's investments in both equity and
fixed-income securities have allocation risk, which is
the risk that the allocation of the investments between
equity and debt securities may have a more significant
effect on the Fund's net asset value when one of these
asset classes is performing more poorly than the other.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an
indication of the historical risk of an investment in
the Fund.
[CHART]
<TABLE>
<CAPTION>
1996 1997 1998
------------------------
<S> <C> <C>
13.48% 22.82% 20.71%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 16.95% (quarter ending
12/31/98) and the lowest return for a quarter was
-7.25% (quarter ending 9/30/98).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
Since
Inception
1 Year (06/01/95)
----------------------------------------------------------------------
<S> <C> <C>
Vintage Balanced 20.71% 19.03%
----------------------------------------------------------------------
50% S&P 500 / 50% Lehman Int. Gov't/Corp. 18.50% 17.88%
----------------------------------------------------------------------
Lehman Int. Gov't/Corp. 8.42% 7.24%
----------------------------------------------------------------------
S&P 500 28.58% 28.64%
----------------------------------------------------------------------
</TABLE>
AN INDEX? An "index" is a formula used to measure the
performance of a particular part of the market and
compare against a Fund's performance. For example, the
Dow Jones Industrial Average is an index, gauging the
performance of 30 stocks the editors of the Wall Street
Journal consider to be central to our economy.
-9-
<PAGE>
VINTAGE STOCK FUNDS
VINTAGE EQUITY OBJECTIVE. The Fund's investment objective is long-term
FUND capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES. The Fund primarily
invests in equity securities. The Fund invests mainly
in large capitalization companies with strong earnings
potential. The Fund attempts to achieve higher overall
return while minimizing risk by investing in quality
companies.
PRINCIPAL RISKS. The principal risk of investing in the
Fund is market risk.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an
indication of the historical risk of an investment in
the Fund.
The annual returns in the bar chart are for the Fund's
S Shares.
[CHART]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
5.45% 2.01% 35.71% 21.35% 30.13% 27.46%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 27.51% (quarter ending
12/31/98) and the lowest return for a quarter was
-15.23% (quarter ending 9/30/98).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
Since
Inception
1 Year 5 Year (12/15/92)
---------------------------------------------------------------
<S> <C> <C> <C>
Vintage Equity-S 27.46% 22.74% 19.65%
---------------------------------------------------------------
Vintage Equity T 27.58% 22.76% 19.67%
---------------------------------------------------------------
S&P 500 28.58% 24.05% 21.58%
---------------------------------------------------------------
</TABLE>
AN INDEX? An "index" is a formula used to measure the
performance of a particular part of the market and
compare against a Fund's performance. For example, the
Dow Jones Industrial Average is an index, gauging the
performance of 30 stocks the editors of the Wall Street
Journal consider to be central to our economy.
-10-
<PAGE>
VINTAGE AGGRESSIVE OBJECTIVE. The Fund's investment objective is long-term
GROWTH FUND capital growth.
PRINCIPAL INVESTMENT STRATEGIES. The Fund normally
invests in companies with a range of capitalizations
that exhibit a strong potential for price appreciation
relative to other companies.
PRINCIPAL RISKS. The principal risk of investing in the
Fund is market risk. To the extent the Fund invests in
small or medium capitalization companies, its returns
may be more volatile and differ, sometimes
significantly, from the overall U.S. market.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an
indication of the historical risk of an investment in
the Fund.
[CHART]
<TABLE>
<CAPTION>
1996 1997 1998
------------------------
<S> <C> <C>
19.31% 26.16% 25.42%
</TABLE>
During the period shown in the bar chart, the highest
return for a quarter was 27.25% (quarter ending
12/31/98) and the lowest return for a quarter was
-14.20% (quarter ending 9/30/98).
The total return for the 6 months ended June 30, 1999
was X.XX%.
<TABLE>
<CAPTION>
-------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (AS OF 12/31/98)
Since
Inception
1 Year (09/29/95)
-------------------------------------------------------------
<S> <C> <C>
Vintage Aggressive Growth 25.42% 22.60%
-------------------------------------------------------------
S&P 400 19.11% 21.86%
-------------------------------------------------------------
NASDAQ Composite 39.63% 25.60%
-------------------------------------------------------------
S&P 500 28.58% 28.00%
-------------------------------------------------------------
</TABLE>
AN INDEX? An "index" is a formula used to measure the
performance of a particular part of the market and
compare against a Fund's performance. For example, the
Dow Jones Industrial Average is an index, gauging the
performance of 30 stocks the editors of the Wall Street
Journal consider to be central to our economy.
-11-
<PAGE>
FEES AND EXPENSES OF THE FUNDS
SHAREHOLDER Fees paid directly from your investment............None
TRANSACTION EXPENSES
ANNUAL FUND The Examples are to help you compare the cost of
OPERATING EXPENSES investing in the Funds with the cost of investing in
(expenses that are other funds. They assume that you invest $10,000 in
deducted from Fund each Fund for the periods indicated and then redeem all
assets) AND your shares at the end of those periods. They also
EXAMPLES assume that your investment has a 5% return each year
and that the Fund's operating expenses stay the same.
Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
OPERATING EXPENSES EXAMPLES
<S> <C> <C> <C>
GOVERNMENT ASSETS FUND T SHARES
----------------------------------------------------------------------
Management Fees 0.40%* After 1 year $78
----------------------------------------------------------------------
Other Expenses 0.36% After 3 years $243
---------------------------
After 5 years $422
----------------------------------------------------------------------
Total Fund Operating Expenses 0.76% After 10 years $942
----------------------------------------------------------------------
LIQUID ASSETS FUND T SHARES
----------------------------------------------------------------------
Management Fees 0.35% After 1 year $86
----------------------------------------------------------------------
Other Expenses 0.49% After 3 years $268
---------------------------
After 5 years $466
----------------------------------------------------------------------
Total Fund Operating Expenses 0.84% After 10 years $1,037
----------------------------------------------------------------------
MUNICIPAL ASSETS FUND T SHARES
----------------------------------------------------------------------
Management Fees 0.35% After 1 year $96
----------------------------------------------------------------------
Other Expenses 0.54% After 3 years $300
---------------------------
After 5 years $520
----------------------------------------------------------------------
Total Fund Operating Expenses 0.94% After 10 years $1,155
----------------------------------------------------------------------
VINTAGE LIMITED TERM BOND FUND
----------------------------------------------------------------------
Management Fees 0.59%** After 1 year $107
----------------------------------------------------------------------
Other Expenses 0.46% After 3 years $334
---------------------------
After 5 years $579
----------------------------------------------------------------------
Total Fund Operating Expenses 1.05% After 10 years $1,283
----------------------------------------------------------------------
</TABLE>
What does it mean? "Management fees" are paid to the
investment adviser for managing the investments and
conducting other functions.
-12-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
OPERATING EXPENSES EXAMPLES
<S> <C> <C> <C>
VINTAGE BOND FUND
----------------------------------------------------------------------
Management Fees 0.55% After 1 year $105
----------------------------------------------------------------------
Other Expenses 0.48% After 3 years $328
---------------------------
After 5 years $569
----------------------------------------------------------------------
Total Fund Operating Expenses 1.03% After 10 years $1,259
----------------------------------------------------------------------
VINTAGE INCOME FUND
----------------------------------------------------------------------
Management Fees 0.60% After 1 year $103
----------------------------------------------------------------------
Other Expenses 0. 41% After 3 years $322
---------------------------
After 5 years $558
----------------------------------------------------------------------
Total Fund Operating Expenses 1.01% After 10 years $1,236
----------------------------------------------------------------------
VINTAGE MUNICIPAL BOND FUND
----------------------------------------------------------------------
Management Fees 0.49%** After 1 year $96
----------------------------------------------------------------------
Other Expenses 0.45% After 3 years $300
---------------------------
After 5 years $520
----------------------------------------------------------------------
Total Fund Operating Expenses 0.94% After 10 years $1,155
----------------------------------------------------------------------
VINTAGE BALANCED FUND
----------------------------------------------------------------------
Management Fees 0.75% After 1 year $130
----------------------------------------------------------------------
Other Expenses 0.53% After 3 years $406
---------------------------
After 5 years $702
----------------------------------------------------------------------
Total Fund Operating Expenses 1.28% After 10 years $1,545
----------------------------------------------------------------------
VINTAGE EQUITY FUND S SHARES
----------------------------------------------------------------------
Management Fees 0.75% After 1 year $143
----------------------------------------------------------------------
Other Expenses 0.65% After 3 years $443
---------------------------
After 5 years $766
----------------------------------------------------------------------
Total Fund Operating Expenses 1.40% After 10 years $1,680
----------------------------------------------------------------------
VINTAGE AGGRESSIVE GROWTH FUND
----------------------------------------------------------------------
Management Fees 0.95% After 1 year $145
----------------------------------------------------------------------
Other Expenses 0.47% After 3 years $449
---------------------------
After 5 years $776
----------------------------------------------------------------------
Total Fund Operating Expenses 1.42% After 10 years $1,702
----------------------------------------------------------------------
* The Fund's Adviser waived 0.05% of the fee for a net fee of 0.35%.
** On March 1, 1999, the management fees for the Limited Term Bond
Fund and Municipal Bond Fund were reduced from 0.60% to 0.50%.
</TABLE>
WHAT DOES IT MEAN? "Other expenses" are paid to help
cover the costs of operating the Fund such as fees for
registering the Fund, custody, and transfer agency.
HOW ARE EXPENSES PAID? You don't pay for operating
expenses from your own account. Instead, the Fund pays
the expenses and then charges each investor an equal
portion of the expense per share.
-13-
<PAGE>
DESCRIPTION OF THE FUNDS
This section of the
Prospectus provides a
more complete
description of each
Fund's investment
objectives and
principal strategies
and risks. There can,
of course, be no
assurance that any Fund
will achieve its
investment objective.
This section describes risks that affect the Funds'
portfolios as a whole. Certain of these risks may apply
to one or more of the Funds. These risks are:
- MARKET RISK. This is the risk that market influences
will affect expected returns of all equities and
bonds in ways that were not anticipated.
- INTEREST RATE RISK. This is the risk that returns
will be better or worse than expected because of
changes in the level of interest rates.
- CREDIT RISK. This is the risk associated with the
ability of the firm that issues securities to meet
its obligations on those securities.
- MANAGEMENT RISK. This risk is the possibility that
the Funds' managers may make poor choices in
selecting securities and that the Funds will not
perform as well as other funds.
This section also describes specific risks that may
affect a particular Fund's portfolio.
-14-
<PAGE>
VINTAGE MONEY MARKET FUNDS
PRIMARY STRATEGIES The Funds' investment objectives are safety of
principal and liquidity, and to the extent consistent
with these objectives, maximum current income (exempt
from Federal income taxes in the case of the Municipal
Assets Fund). As money market funds, each Fund must
meet the requirements of SEC Rule 2a-7. The Rule
imposes strict requirements on the investment quality,
maturity, and diversification of the Funds' investment.
Under Rule 2a-7, the Funds' investments must each have
a remaining maturity of no more than 397 days and the
Funds must each maintain an average weighted maturity
that does not exceed 90 days.
GOVERNMENT ASSETS The Fund invests exclusively in U.S. Treasury bills,
FUND notes and other obligations issued or guaranteed by the
U.S. Government, its agencies, or instrumentalities.
The Fund may invest in repurchase agreements for these
U.S. Government obligations.
LIQUID ASSETS FUND The Fund pursues its objectives by investing in
high-quality money market obligations. The Fund may
invest in:
- U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities;
- redeemable interest-bearing ownership certificates
issued by one or more guaranteed loans trusts created
for the purpose of acquiring participation interests
in the guaranteed portion of Farmer's Home
Administration guaranteed loans.
- high-quality commercial paper (rated or determined by
the Adviser to be of comparable quality);
- certificates of deposit and bankers' acceptances
issued by U.S. banks that have assets in excess of
$10,000,000 and obligations of other banks or savings
and loans insured by the FDIC;
- high-quality short-term corporate obligations; and
- repurchase agreements collateralized by the types of
securities listed above.
MUNICIPAL ASSETS The Fund pursues its objective by investing in high
FUND quality tax-exempt debt obligations of state and
municipal governments. The Fund may invest in:
- tax-exempt debt obligations issued by state and
municipal governments that are unrated and backed by
demand repurchase commitments and participation
interests in these securities; and
- variable rate demand notes.
The Fund may purchase new issues of tax-exempt debt
obligations that are offered on a when-issued basis
with the securities to be delivered and paid for
approximately 45 days following the initial purchase
commitment. The Fund may also invest up to 20% of its
assets in taxable securities.
-------------------------------------------------------
THE MONEY MARKET? So their cash won't sit idly without
earning interest, many institutions loan it to other
institutions who need the money to fill very short-term
needs (often, literally, overnight). Borrowers get the
cash needed and lenders earn interest on the loan while
still having quick access to their cash. The cash you
invest in a money market fund is used exactly the same
way--keeping you within quick reach of your own money.
-15-
<PAGE>
RISK CONSIDERATIONS The Money Market Funds are subject to management
FOR THE MONEY risk. In addition, specific risks of the Funds'
MARKET FUNDS portfolios include:
INTEREST RATE RISK. Because the Funds invest in
short-term securities, a decline in interest rates will
affect the Funds' yields as these securities mature or
are sold and the Funds purchase new short-term
securities with lower yields. Generally, an increase in
interest rates causes the value of a debt instrument to
decrease. The change in value for shorter-term
securities is usually smaller than for securities with
longer maturities. Because the Funds invest in
securities with short maturities and seek to maintain a
stable net asset value of $1.00 per share, it is
possible, though unlikely, that an increase in interest
rates would change the value of your investment.
CREDIT RISK. This is the risk that a security's credit
rating will be downgraded or that the issuer of a
security will default (fail to make scheduled interest
and principal payments). The Funds invest in highly
rated securities to minimize credit risk.
MUNICIPAL MARKET RISK. The Municipal Assets Fund faces
the risk that special factors may adversely affect the
value of municipal securities and have a significant
effect on the value of the Fund's investments. These
factors include political or legislative changes,
uncertainties related to the tax status of municipal
securities, or the rights of investors in these
securities. The Fund's investments in certain municipal
securities with principal or interest payments that are
made from a specific project or facility, and not from
general tax revenues, may have increased risks. Factors
affecting the project or facility, such as local or
economic conditions, could have significant effect on
the project's ability to make payments of principal and
interest on these securities.
VINTAGE BOND FUNDS
VINTAGE LIMITED The Fund's investment objective is total return from a
TERM BOND FUND portfolio of limited-term fixed-income securities. The
Fund normally invests more than 65% of its total assets
in fixed-income securities rated within the three
highest rating categories or, if unrated, of comparable
quality. Among the Fund's investments in fixed-income
securities are corporate debt securities, U.S.
Government obligations, and mortgage-related and
asset-backed securities. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 1 to 4
years.
The Fund seeks to obtain total return through a
combination of interest income from the Fund's
underlying fixed-income securities, appreciation or
depreciation in the value of these fixed-income
securities, and gains or losses realized upon the sale
of these securities. In selecting investments, the Fund
places primary emphasis on capital appreciation and
capital preservation through periodic adjustment of the
average maturity or duration of the Fund's portfolio,
securities selection, maturity structure and sector
allocation. Current income is a secondary
consideration.
The Fund primarily invests in bonds, notes, and
debentures of a wide range of domestic fixed-income
security issuers.
VINTAGE BOND FUND The Fund's investment objective is income and capital
appreciation, consistent with the preservation of
capital. The Fund normally invests more than 65% of its
total assets in debt securities rated within the three
highest rating categories or, if
-------------------------------------------------------
LIQUIDITY? Liquidity defines how quickly an investment
can be converted to cash. Money market funds are the
most liquid mutual funds, converting cash in one day.
All other types of Funds require a three day
"settlement," which means the cash isn't available to
you until the third day after a sale.
-16-
<PAGE>
unrated, of comparable quality. Among the Fund's
investments in fixed-income securities are corporate
debt securities, mortgage-related and asset-backed
securities, and U.S. Government obligations. In
selecting investments, the Fund places primary emphasis
on portfolio duration analysis, yield-curve
positioning, sector allocation and issue selection. The
Fund expects to maintain a dollar-weighted average
portfolio maturity of 4 to 10 years.
The Fund primarily invests in bonds, notes, and
debentures of a wide range of domestic fixed-income
security issuers.
The market value of fixed-income securities changes as
interest rates change. When interest rates decline, the
value of these securities generally increases. When
interest rates rise, the value of these securities
generally decreases. To meet the objectives of the Fund
and to seek additional stability of principal, the Fund
adjusts the average maturity of its investments based
on the direction of interest rate levels.
VINTAGE INCOME FUND The Fund's investment objective is current income,
consistent with the preservation of capital. The Fund
normally invests more than 65% of its total assets in
fixed-income securities rated within the three highest
rating categories or if unrated, of comparable quality.
Among the Fund's investments in fixed-income securities
are mortgage-related and asset-backed securities,
corporate debt securities, and U.S. Government
obligations. In selecting investments, the Fund places
primary emphasis on portfolio duration analysis,
yield-curve positioning, sector allocation and issue
selection. The Fund expects to maintain a
dollar-weighted average portfolio maturity of 4 to 10
years.
The Fund primarily invests in bonds, notes, and
debentures of a wide range of domestic fixed-income
security issuers.
The market value of fixed-income securities changes as
interest rates change. When interest rates decline, the
value of these securities generally increases. When
interest rates rise, the value of these securities
generally decreases. To meet the objectives of the Fund
and to seek additional stability of principal, the Fund
adjusts the average maturity of its investments based
on the interest rate outlook. During periods of rising
interest rates and falling prices, the Fund could
select investments with a shorter average maturity to
cushion the effect of price declines on the Fund's net
asset value. When rates are falling and prices are
rising, the Fund may consider investments with a longer
average maturity.
VINTAGE MUNICIPAL The Fund's investment objective is current income, that
BOND is exempt from federal income taxes, consistent with
the preservation of capital. The Fund normally invests
at least 80% of its net assets in a diversified
portfolio of municipal securities paying interest that
is exempt from federal income taxes and that is not
subject to alternative minimum tax ("AMT"). The Fund
expects to maintain a dollar-weighted average portfolio
maturity of 4 to 10 years.
The Fund normally invests in municipal obligations that
have a stated or remaining maturity of 25 years or less
or in municipal obligations with a stated or remaining
maturity in excess of 25 years if such obligations have
an unconditional put to sell or redeem the securities
within 25 years from the date of purchase.
-17-
<PAGE>
The Fund invests in:
- municipal bonds that are rated within the five
highest rating categories; and
- municipal notes, tax-exempt commercial paper, and
variable rate demand obligations that are rated
within the two highest rating categories.
The Fund also may invest up to 10% of its total assets
in municipal obligations that are unrated at the time
of purchase but are determined by the Adviser to be of
comparable quality to rated securities.
Municipal securities are typically classified as either
"general obligation" or "revenue" bonds. General
obligation securities are secured by the issuer's
pledge of its full faith, credit, and taxing power for
the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a
particular facility or class of facilities, or, in some
cases, from the proceeds of a special excise tax or
other specific revenue source. The payment of principal
and interest on revenue bonds is dependent solely on
the ability of the user of the facilities financed by
the bonds to meet its financial obligations and a
secured interest in the facility.
The Fund may invest up to 25% of its total assets in
municipal securities that are related in such a way
that business or political developments or changes
affecting one security could also affect the others
(for example, securities with interest that is paid
from projects of a similar type).
RISK CONSIDERATIONS The principal risks of the Vintage Bond Funds are
interest rate risk, credit risk, management risk, and
market risk.
The Vintage Bond Funds, other than the Municipal Bond
Fund, may invest a significant portion of their assets
in mortgage-related and asset-backed securities. These
securities have sensitivities to changes in interest
rates that are different from many other types of debt
securities. When interest rates rise, the maturities of
these types of securities tend to lengthen and the
value of the securities decreases more significantly.
In addition, these types of securities are subject to
prepayment when interest rates fall, which generally
results in lower returns because the Funds must
reinvest their assets in debt securities with lower
interest rates.
The Municipal Bond Fund has municipal market risk. This
is the risk that special factors may adversely affect
the value of municipal securities and have a
significant adverse effect on the value of the Fund's
investments. These factors include political or
legislative changes, uncertainties related to the tax
status of municipal securities, or the rights of
securities in these securities. The Fund's investments
in certain municipal securities with principal and
interest payments that are made from the revenues of a
specific project or facility, and not general tax
revenues, may have increased risk. Factors affecting
the project or facility, such as local business or
economic conditions, could have a significant effect on
the project's ability to make payments of principal and
interest on these securities.
-------------------------------------------------------
TAX-EXEMPT FUND? Funds that invest primarily in
tax-exempt municipal bonds from a particular state are
called "tax-exempt Funds." The income you earn from
these Funds may be exempt from local, state, or federal
taxation.
-------------------------------------------------------
WHAT IS RISK? Every Fund has risks, some more than
others. But there's another kind of risk you might also
consider; the risk of not reaching your goal. For
example, if you're trying to earn enough to pay for
college in, say, ten years, a low-interest bond fund
may not earn enough to grow your money in time. That's
why knowing your goal and the time frame for reaching
that goal are crucial steps in choosing the right
investments.
-18-
<PAGE>
OTHER INVESTMENT All of the Vintage Bond Funds may invest in debt
POLICIES AND RISKS securities rated in the five highest rating categories.
FOR THE BOND FUNDS The Funds also may invest up to 25% of their assets in
debt securities rated in fifth highest rating category,
which are considered below investment grade securities
(commonly known as "junk bonds"). The Bond Funds'
investments in lower-rated debt securities are subject
to more interest rate and credit risk than investments
in higher-rated debt securities.
VINTAGE BALANCED FUND
The Fund's investment objective is long-term growth of
capital and income. The Fund invests in a diversified
portfolio of equity securities and fixed-income
securities. Normally, the Fund invests up to 75% of its
total assets in equity securities and at least 25% of
its total assets in fixed-income securities. The
investment manager allocates holdings to take advantage
of economic conditions, general market trends, interest
rate levels, and changes in fiscal and monetary
policies.
For the equity portion of the portfolio, the Fund
selects investments based on the same factors used for
the Equity Fund, described below. The Fund seeks
industry and stock diversification to minimize risk.
The Fund's investments in equity securities include
common stocks, preferred stocks, and convertible
securities. The Fund also may invest in foreign
securities through the purchase of American Depository
Receipts ("ADRs").
In the fixed-income portion of the portfolio, the Fund
expects to maintain a dollar-weighted average maturity
of 4 to 10 years. The Fund will invest approximately
65% of this portion of its portfolio in investment
grade securities (rated in the three highest rating
categories or, if unrated, of comparable quality).
These securities include corporate debt securities,
mortgage-related and asset-backed securities, and U.S.
Government obligations. The Fund invests in bonds,
notes, and debentures of a wide range of U.S. corporate
issuers. The Fund also may invest up to 25% of the
fixed-income portion of its portfolio in lower-rated
securities.
RISK CONSIDERATIONS The principal risks of the Balanced Fund are market
risk, interest rate risk, credit risk, and management
risk. In addition, the Fund has allocation risk, which
is the risk that the allocation of investments between
equity and debt securities will have a more significant
effect on the Fund's net asset value when one of these
asset classes is performing more poorly than the other.
The fixed-income portion of the Fund's portfolio has
similar risks to those discussed above for the Vintage
Bond Funds. These include the risk of investing in
mortgage-related securities, which tend to be more
volatile than other types of fixed-income securities,
and the risk of investing in lower-rated securities,
which may have more interest rate and credit risk.
-19-
<PAGE>
VINTAGE STOCK FUNDS
VINTAGE EQUITY The Fund's investment objective is long-term capital
FUND appreciation. The Fund normally invests at least 75% of
its total assets in equity securities. The Fund
primarily invests in large capitalization companies
with strong earnings potential. The Fund strives for
high overall return, while minimizing risk through the
selection of quality equity securities. The Fund
invests in common stocks and convertible and preferred
securities. The Fund also may invest in foreign
securities through the purchase of ADRs.
Focusing on earnings, the Fund selects equity
securities using a process that features thorough
research and fundamental analysis based on a "bottom
up" approach. The Fund, through a variety of sources,
identifies investment opportunities that exhibit
superior growth potential. The Fund selects investments
based on a long-term perspective and emphasizes quality
and consistency of earnings.
The earnings focus of the selection process utilizes a
number of factors. These factors are quantitative and
qualitative. They include revenue potential, balance
sheet strength, management quality, industry
leadership, profit margins, cash flow generation and
identifiable growth catalysts.
The Fund generally invests in those firms whose stock
trades at an attractive price relative to earnings
potential in relation to overall market, relevant peer
group and historical trading range valuations. The Fund
may sell stocks that it believes to be over-valued
relative to earnings growth potential, when
fundamentals weaken or when better prospects are
discovered.
VINTAGE AGGRESSIVE The Fund's investment objective is long-term capital
GROWTH FUND growth. The Fund invests primarily in equity securities
of companies with a range of capitalizations that
exhibit a strong potential for price appreciation
relative to the general equity markets. The Fund
invests in common stocks and convertible and preferred
securities. The Fund also may invest in foreign
securities through the purchase of ADRs. Dividend
income is not a factor in selecting investment
securities.
Using the same earnings-focused criteria described for
the Equity Fund, the Fund seeks investments in firms
with superior earnings potential and products in niche
markets, and stocks that are perceived to be
temporarily under-valued. The Fund may make more
significant investments in firms or industry sectors
that are believed to be particularly attractive. The
Fund may make more frequent purchases or sales of
stocks based on rapid swings in relative valuations.
-------------------------------------------------------
MARKET CAPITALIZATION? All stocks have a "market
capitalization." It refers to the stock's total value
in the marketplace, determined by multiplying the
number of shares issued times the price of each share.
For example, a company with many millions of shares
selling at a high price has a large market
capitalization and would be called a "large cap" stock.
A company with relatively few shares selling at a low
price would be called a "small cap" stock.
-20-
<PAGE>
RISK CONSIDERATIONS The principal risks of the Stock Funds are market risk
and management risk. To the extent that the Funds may
invest in small- to mid-capitalization companies, they
may have capitalization risk. These investments tend to
be more volatile than investments in large-cap
companies. In addition, small-cap companies may have
more risk because they often have limited product
lines, markets, or financial resources. Also, the
market for the sale of small-cap stocks may be less
liquid. To the extent that the Funds may invest in
foreign securities, they may have foreign risk. This is
the risk of investments in issuers located in foreign
countries, which may have a greater price volatility
and less liquidity. Investments in foreign securities
also are subject to political, regulatory, and
diplomatic risks. Foreign risk includes currency risk,
which may occur due to fluctuations in the exchange
rates between the U.S. dollar and foreign currencies.
This risk could negatively affect the value of a Fund's
investments.
OTHER INVESTMENT MORTGAGE-RELATED AND ASSET-BACKED SECURITIES.
INFORMATION Mortgage-related securities represent pools of mortgage
loans assembled for sale to investors by various
governmental agencies and government-related
organizations, as well as by private issuers (such as
commercial banks, savings and loan institutions,
mortgage bankers and private mortgage insurance
companies).
Asset-backed securities represent fractional interests
in pools or leases, retail installment loans or
revolving credit receivables, both secured and
unsecured. These assets are generally held by a trust,
and payments of principal and interest or interest only
are passed-through monthly or quarterly to certificate
holders and may be guaranteed up to certain amounts by
letters of credit issued by a financial institution
affiliated or unaffiliated with the trustee or
originator of the trust.
U.S. GOVERNMENT SECURITIES. U.S. Government securities
include obligations issued or guaranteed by the U.S.
Treasury, such as Treasury bills, notes, bonds, and
certificates of indebtedness, and obligations issued or
guaranteed by agencies or instrumentalities of the U.S.
Government.
PORTFOLIO TURNOVER RATE. The portfolio turnover rate
for each Fund is included in the Financial Highlights
Section. The Funds are actively managed and, in some
cases in response to market conditions, a Fund's
portfolio turnover may exceed 100%. A higher rate of
portfolio turnover increases brokerage and other
expenses and may affect a Fund's returns. A higher
portfolio turnover rate also may result in the
realization of substantial net short-term capital
gains, which, when distributed, are taxable to a Fund's
shareholders.
TEMPORARY DEFENSIVE POSITION. For temporary defensive
purposes in response to adverse market or other
conditions, a Fund may make investments, including
short-term money market instruments or holding
substantial cash reserves, that are inconsistent with
the Fund's primary investment strategies. For those
Funds that invest primarily in tax-exempt securities,
these temporary investments could include taxable
securities. While the Funds are investing for temporary
defensive purposes, they may not meet their investment
objectives.
-21-
<PAGE>
YEAR 2000. The Funds could be adversely affected if the
computer systems used by the 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 Adviser is taking steps that it
believes are reasonably designed to address the Year
2000 Problem for the computer services that it uses and
to obtain reasonable assurances that comparable steps
are being taken by the Funds' 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 Funds. In addition, the Year 2000 Problem
may adversely affect the issuers of securities in which
the Funds invest, which, in turn, may adversely affect
the Funds' NAV.
-22-
<PAGE>
MANAGEMENT OF THE FUND
INVESTMENT ADVISER Each Fund's Adviser is Investors Management Group, Ltd.
("IMG"), 2203 Grand Avenue, Des Moines, Iowa. IMG is a
wholly owned subsidiary of AMCORE Investment Group,
N.A. that provides continuous investment management to
pension and profit-sharing plans, insurance companies,
public agencies, banks, endowments and charitable
institutions, other mutual funds, individuals and
others. As of June 30, 1999, IMG had approximately $X.X
billion in equity, fixed-income and money market assets
under management.
IMG provides investment advisory services and order
placement facilities for the Funds. For these advisory
services for the fiscal year ending March 31, 1999, the
Funds paid IMG as a percentage of average daily net
assets:
<TABLE>
<CAPTION>
FEE AS A PERCENTAGE OF
FUND AVERAGE DAILY NET ASSETS*
<S> <C>
Government Assets Fund .37%
Liquid Assets Fund .35%
Municipal Assets Fund .35%
Vintage Limited Term Bond Fund .59%
Vintage Bond Fund .55%
Vintage Income Fund .60%
Vintage Municipal Bond Fund .49%
Vintage Balanced Fund .75%
Vintage Equity Fund .75%
Vintage Aggressive Growth Fund .95%
</TABLE>
* Fees are stated net of any waivers and/or
reimbursements. See the "Fee Table" at the beginning
of the Prospectus for more information about fee
waivers.
-23-
<PAGE>
PORTFOLIO MANAGERS The following individuals serve as portfolio managers
for the Funds and are primarily responsible for the
day-to-day management of the Funds' portfolios:
GOVERNMENT ASSETS, LIQUID ASSETS, MUNICIPAL ASSETS, LIMITED TERM BOND, BOND,
INCOME, MUNICIPAL BOND, AND BALANCED FUNDS
<TABLE>
<S><C>
- ----------------------------- ------------------------------ ------------------------------
KATHRYN D. BEYER, CFA, JEFFREY D. LORENZEN, CFA, ELIZABETH S. PIERSON, CFA,
MANAGING DIRECTOR MANAGING DIRECTOR VICE PRESIDENT AND SENIOR
FIXED-INCOME MANAGER
- - Ms. Beyer is a fixed-income - Mr. Lorenzen is a
strategist and is a member fixed-income strategist, is - Ms. Pierson is a
of IMG's Investment Policy a member of IMG's Investment fixed-income strategist and
Committee. Policy Committee, and is a member of IMG's
chairperson of the Bond Investment Policy Committee.
- - She has been with IMG since Research Committee.
1993. - She has been with AMCORE
- He has been with IMG since Capital Management, Inc. (or
1992. a predecessor) since 1984.
Ms. Pierson became an
employee of IMG effective
with the acquisition of IMG
by AMCORE Financial, Inc. in
February 1998.
- ----------------------------- ------------------------------ ------------------------------
BALANCED, EQUITY AND AGGRESSIVE GROWTH FUNDS
------------------------------- ------------------------------
JULIE A. O'ROURKE, CFA, VICE DARRELL C. THOMPSON, SENIOR
PRESIDENT AND EQUITY MANAGER VICE PRESIDENT AND SENIOR
EQUITY MANAGER
- Ms. O'Rourke is a member of
IMG's Investment Policy - Mr. Thompson is a member of
Committee. IMG's Investment Policy
Committee.
- She has been with AMCORE
Capital Management, Inc. (or - He has been with AMCORE
a predecessor) since 1991. Capital Management, Inc. (or
Ms. O'Rourke became an a predecessor) since 1973.
employee of IMG effective Mr. Thompson became an
with the acquisition of IMG employee of IMG effective
by AMCORE Financial, Inc. in with the acquisition of IMG
February 1998. by AMCORE Financial, Inc. in
February 1998.
------------------------------- ------------------------------
</TABLE>
-24-
<PAGE>
PURCHASE AND SALE OF SHARES
HOW THE FUNDS Except for the Money Market Funds, each Fund's net
VALUE THEIR SHARES asset value or NAV is calculated at 3:00 p.m. Central
time each day the Exchange is open for business. The
Money Market Funds' NAV is calculated at 11:00 a.m.
Central time.
To calculate NAV, a Fund's assets are valued and
totaled, liabilities are subtracted, and the balance,
called net assets, is divided by the number of shares
outstanding. The Funds, other than the Money Market
Funds, value their assets at their current market value
determined on the basis of market quotations, or if
such quotations are not readily available, such other
methods as the Funds' directors believe accurately
reflect fair market value. The Money Market Funds value
their securities at their amortized cost. This method
involves valuing a security at its cost and thereafter
applying a constant amortization to maturity of any
discount or premium, regardless of the effect of
fluctuating interest rates on the market value of the
investment.
Your order for purchase, sale, or exchange of shares is
priced at the next NAV calculated after your order is
received by the Fund. See the next section of this
Prospectus, Distribution Arrangements, for details.
HOW TO BUY SHARES You may purchase a Fund's shares through qualified
banks, broker/dealers, investment advisory firms and
other organizations that have entered into dealer
and/or shareholder agreements with the distributor
and/or servicing agreements with the Funds.
Minimum investment amounts are:
Initial $1,000
Subsequent $50
401(k) and 403(b) and other plans
Initial and Subsequent $25
Automatic Investment Program
Initial $250
Subsequent $25
To purchase shares of a Fund, complete an Account
Application and return it along with a check (or other
negotiable bank draft or money order) in at least the
minimum initial purchase amount, made payable to
Vintage Mutual Funds, Inc. to:
Vintage Mutual Funds, Inc.
Dept. L-1392
Columbus, OH 43260-1392
-------------------------------------------------------
NAV? Why is a share priced at something called the
"NAV" (net asset value)? If you take the total value of
all the securities held by the Fund, deduct the
expenses paid by the Fund, and then divide that net
result by the number shares owned by investors, you get
the share's net asset value. The NAV is calculated at
the end of each business day of the Fund.
-25-
<PAGE>
An Account Application form can be obtained by calling
the Funds at (800) 438-6375 or from the Funds' website
at www.VintageFunds.com. Subsequent purchases of shares
of a Fund may be made at any time by mailing a check,
payable to Vintage Mutual Funds, Inc., to the above
address. If you are an existing Fund shareholder, you
may purchase shares by electronic funds transfer if you
have completed the appropriate section of the Account
Application. Call (800) 438-6375 to arrange a transfer
from your bank account.
A Fund is required to withhold 31% of taxable
dividends, capital gains distributions, and redemptions
paid to shareholders who have not provided the Fund
with their certified taxpayer identification number. To
avoid this, you must provide your correct Tax
Identification Number (Social Security Number for most
investors) on your Account Application.
A Fund may refuse any order to purchase shares. In
particular, the Funds reserve the right to restrict
purchases of shares (including exchanges) when they
appear to evidence a pattern of frequent purchases and
sales made in response to short-term conditions.
HOW TO EXCHANGE You may exchange your Fund shares for shares of the
SHARES same class of the other Funds. Exchanges of shares are
made at the next-determined NAV. You may request an
exchange by mail or telephone. You must call by 3:00
p.m., Central time, to receive that day's NAV. The
Funds may change, suspend, or terminate the exchange
service at any time. The exchange option will be
unavailable for a period of 30 days following a
telephonic address change.
AUTO EXCHANGE. In order to participate in Auto
Exchange, after completing the appropriate section of
the Account Application, you must:
- be a shareholder of the Money Market Funds;
- have a minimum initial purchase of $10,000 in the
Money Market Funds; and
- maintain a minimum account balance of $1,000.
To change Auto Exchange instructions or to discontinue
the feature, you must send a written request to the
Vintage Mutual Funds, Inc., Dept. L-1392, Columbus, OH
43260-1392. The distributor may amend or terminate Auto
Exchange without notice at any time.
-26-
<PAGE>
HOW TO SELL SHARES You may "redeem" your shares (I.E., sell your shares
back to a Fund) on any day the Exchange is open, either
directly or through your financial intermediary. Your
sales price will be the next-determined NAV after the
Fund receives your sales request in proper form.
Normally, proceeds will be sent to you within 3 days.
If you recently purchased your shares by check or
electronic funds transfer, your redemption payment may
be delayed until the Fund is reasonably satisfied that
the check or electronic funds transfer has been
collected (which may take up to 10 days). Redemptions
may ordinarily be requested by mail, or by telephone if
you selected that option on the Account Application.
SELLING SHARES DIRECTLY TO THE FUND
BY MAIL:
Send a signed letter of instruction to:
Vintage Mutual Funds, Inc.
Dept. L-1392
Columbus, OH 43260-1392
For your protection, a bank, a member firm of a
national stock exchange, a credit union, a clearing
agency, a savings association, or other eligible
guarantor institution, must guarantee signatures.
Additional documentation is required for the sale of
shares by corporations, intermediaries, fiduciaries and
surviving joint owners. If you have any questions about
the procedures, contact the Funds.
BY TELEPHONE:
You may redeem your shares by telephone request unless
you choose not to have this option on the Account
Application. Call the Funds at (800) 438-6375 with
instructions on how you wish to receive your sale
proceeds.
A telephone redemption request must be received by 3:00
p.m., Central time, for you to receive that day's NAV.
You may have the proceeds mailed to your address, or
mailed or sent electronically to a commercial bank
account previously designated on your Account
Application.
Telephone redemption is not available for shares held
in nominee or street name accounts, or retirement plan
accounts.
If you are unable to contact the Funds by telephone,
you may also mail the redemption request to the Funds
at the address listed above. The telephone redemption
option will be unavailable for a period of 10 days
following a telephonic address change.
-27-
<PAGE>
BY CHECK:
A free check writing service is available for the Money
Market Funds. To establish this service and obtain
checks:
- at the time the account is opened, complete the
Signature Card section of the Account Application
Form; or
- after opening an account in the Fund, contact the
Funds by telephone or mail to obtain an Account
Application Form, and complete and return the
Signature Card section.
You will receive the dividends and distributions
declared on the shares to be redeemed up to the day
that a check is presented for payment. Upon 30 days'
prior written notice to you, the check writing
privilege may be modified or terminated. You may not
close a Fund account by writing a check. There is a $25
charge for each stop payment request.
AUTO WITHDRAWAL The Auto Withdrawal Plan enables you, as a shareholder
PLAN of a Fund, to make regular monthly or quarterly
redemptions of shares. With your authorization, the
Transfer Agent will automatically redeem shares at NAV
on the dates of the withdrawal and have a check in the
amount specified mailed to you or automatically
deposited into your bank account. In order to
participate:
- the required minimum withdrawal is $100; and
- the Fund must maintain a $1,000 minimum balance.
To participate in the Auto Withdrawal Plan, you should
call (800) 438-6375 for more information.
AUTOMATIC The Funds reserve the right to redeem, at NAV, the
REDEMPTION shares of any shareholder if, because of redemptions of
shares by or on behalf of the shareholder (but not as a
result of a decrease in the market price of such
shares), the account of such shareholder has a value of
less than $500. Before the Funds exercise their right
to redeem these shares, the shareholder will be given
notice that the value of the shares in his or her
account is less than the minimum amount and will be
allowed 60 days to make an additional investment that
will increase the value of the account to at least
$500.
If you elect to receive distributions in cash, and
checks (1) are returned and marked as "undeliverable"
or (2) remain uncashed for six months, your cash
election will be changed automatically and your future
dividend and capital gains distributions will be
reinvested in the Fund at the per share NAV determined
as of the date of payment of the distribution. In
addition, any undeliverable checks or checks that
remain uncashed for six months will be canceled and
will be reinvested in the Fund at the per share NAV
determined as of the date of cancellation.
-28-
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIRECT DIVIDEND You may elect to have all income dividends and capital
OPTION gains distributions paid by check or reinvested in any
other Fund, (provided the other Fund is maintained at
the minimum required balance).
The Directed Dividend Option may be modified or
terminated by the Funds at any time after notice to
participating shareholders. Participation in the
Directed Dividend Option may be terminated or changed
by the shareholder at any time by writing the
distributor. The Directed Dividend Option is not
available to participants in an IRA.
DIVIDENDS AND The Limited Term Bond, Bond, Income and Municipal Bond
CAPITAL GAINS Funds each intend to declare their net investment
income monthly as a dividend to shareholders at the
close of business on the day of declaration. The Money
Market Funds intend to declare net investment income
daily as a dividend to shareholders at the close of
business on the day of declaration. These Funds will
generally pay such dividends monthly.
The Balanced, Equity, and Aggressive Growth Funds
intend to declare their net investment income quarterly
as a dividend to shareholders at the close of business
on the day of declaration, and generally will pay such
dividends quarterly.
Each Fund also intends to distribute its capital gains,
if any, at least annually, normally in December of each
year. A shareholder will automatically receive all
income dividends and capital gains distributions in
additional full and fractional shares of a Fund at NAV
as of the ex-dividend date, unless the shareholder
elects to receive dividends or distributions in cash.
Such election must be made on the Account Application;
any change in such election must be made in writing to
the Funds at Dept. L-1392, Columbus, Ohio 43260-1392
and will become effective with respect to dividends and
distributions having record dates after its receipt by
the Transfer Agent. Dividends are paid in cash not
later than seven business days after a shareholder's
complete redemption of his or her shares.
TAX CONSIDERATIONS Dividends that are distributed by a Fund that are
derived from interest income exempt from federal income
tax and are designated by the Fund as "exempt-interest
dividends" will be exempt from regular federal income
taxation. However, if tax-exempt interest earned by the
Fund constitutes an item of tax preference for purposes
of the AMT, then a portion of the exempt-interest
dividends paid by the Fund may likewise constitute an
item of tax preference. In addition, any
exempt-interest dividends received by corporate
shareholders may constitute an adjustment to AMT income
for purposes of the AMT and the environmental tax
imposed under Code Sections 55 and 59A, respectively.
Only the Municipal Bond and Municipal Assets Funds are
expected to be eligible to designate certain dividends
as "exempt-interest dividends."
-29-
<PAGE>
Exempt-interest dividends of a Fund, although exempt
from regular federal income tax, are included in the
tax base for determining the extent to which Social
Security and railroad benefits will be subject to
federal income tax. All shareholders are required to
report the receipt of dividends and distributions,
including exempt-interest dividends, on their federal
income tax returns.
Dividends paid out of a Fund's investment company
taxable income (including dividends, taxable interest
and net short-term capital gains) will be taxable to a
U.S. shareholder as ordinary income. A portion of the
Balanced, Equity, and Aggressive Growth Funds income
may consist of dividends paid by U.S. corporations.
Therefore, a portion of the dividends paid by these
Funds may be eligible for the corporate
dividends-received deduction. Distributions of net
capital gains (the excess of net long-term capital
gains over net short-term capital losses), if any,
designated by a Fund as capital gain dividends are
taxable as long-term capital gains, regardless of the
length of time the Shareholder has held a Fund's
shares.
A distribution will be treated as paid on December 31
of the current calendar year if it is declared by a
Fund in October, November or December of that year to
shareholders of record on a date in such a month and
paid by a Fund during January of the following calendar
year. Such distributions will be treated as received by
shareholders in the calendar year in which the
distributions are declared, rather than the calendar
year in which the distributions are received.
Each year the Funds will notify shareholders of the tax
status of dividends and distributions.
Shareholders should be aware that redeeming shares of
the Municipal Bond Fund after tax-exempt interest
income has been accrued by the Fund but before that
income has been declared as a dividend may be
disadvantageous. This is because the gain, if any, on
the redemption will be taxable, even though such gain
may be attributable in part to the accrued tax-exempt
interest which, if distributed to the shareholder as a
dividend rather than as redemption proceeds, might have
qualified as an exempt-interest dividend.
Distributions from all of the Funds may be subject to
state and local taxes. Distributions of a Fund that are
derived from interest on U.S. Government securities may
be exempt from state and local taxes in certain states.
In certain states, distributions of the Municipal Bond
and Municipal Assets Funds which are derived from
interest on obligations of that state or its
municipalities or any political subdivisions may be
exempt from state and local taxes. Shareholders should
consult their tax advisors regarding the possible
exclusion for state and local income tax purposes of
the portion of dividends paid by a Fund which is
attributable to interest from U.S. Government
securities and the particular tax consequences to them
of an investment in a Fund, including the application
of state and local tax laws.
-------------------------------------------------------
SHORT- OR LONG-TERM? If you sell or exchange your Fund
shares within 12 months of buying them, you will
receive a short-term capital gain. Any sale or exchange
beyond that time will generate a long-term capital
gain.
-30-
<PAGE>
DISTRIBUTION ARRANGEMENTS
SHARE CLASSES In addition to the shares generally offered for
investment, some of the Funds offer special classes of
shares. Each class of shares is exchangeable only for
shares of the same class.
SHARE CLASS CLASS DESCRIPTION
"S" and "S2" These shares are normally offered
through financial institutions
providing automatic "Sweep"
investment programs to their
customers. These shares bear
separate distribution and/or
shareholder servicing fees.
Participating organizations selling
or servicing these shares may
receive different compensation with
respect to one class over another.
"S" Shares of These shares are offered to all
the Equity Fund shareholders, except those who
qualify for "T" shares of the
Equity Fund. See "T" Shares of the
Equity Fund below.
"T" These shares offer a check writing
privilege and are also offered
through trust organizations or
others providing shareholder
services such as establishing and
maintaining custodial accounts and
records for their customers who
invest in "T" shares, assisting
customers in processing purchase,
exchange and redemption requests
and responding to customers'
inquiries concerning their
investments, though they may also
be used in "sweep" programs. These
shares bear separate distribution
and/or shareholder servicing fees.
Participating organizations selling
or servicing these shares may
receive different compensation with
respect to one class over another.
"T" Shares of These shares are offered solely to
the Equity Fund fiduciary accounts of AMCORE
Investment Group, N.A. over which
AMCORE Investment Group, N.A.
exercises investment discretion.
"I" These shares pay no shareholder or
servicing fees and so are normally
offered directly by the distributor
or through trust organizations
providing fiduciary account
services for an additional fee.
OTHER EQUITY "S" SHARES. Depending upon the terms of the
particular Customer account, a Participating
Organization may charge a Customer account fees for
services provided in connection with investments in a
Fund. Information concerning these services and any
charges will be provided by the Participating
Organization. This Prospectus should be read in
conjunction with any such information provided by the
Participating Organization.
ASSET-BASED SALES CHARGE OR RULE 12b-1 FEES. Each Fund
has adopted a plan under SEC Rule 12b-1 that allows the
Fund to pay asset-based sales charges or distribution
and service fees for the distribution and sale of its
shares. The plan allows a fund to charge fees up to
0.50% but no 12b-1 fees are currently being imposed
under the plan.
-31-
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
-32-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you
understand the Fund's financial performance for the
past 5 years (or, if shorter, the period of the Fund's
operations). Certain information reflects financial
results for a single Fund share. The total returns in
the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and
distributions). The information for the period ended on
March 31, 1999, has been audited by McGladrey & Pullen,
LLP, whose report, along with the Fund's financial
statements, are included in the Funds' annual report,
which is available upon request. The information for
the period ended on March 31, 1998, has been audited by
KPMG Peat Marwick LLP. The information for the Liquid
Assets Fund, Municipal Assets Fund, and Bond Fund for
the period ended on or prior to March 31, 1997, has
been audited by KPMG Peat Marwick. The information for
all other Funds for the periods ended on or prior to
March 31, 1997, has been audited by Ernst & Young LLP.
-33-
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
--------------------------------------------------- ----------------------------------------
FROM NET
NAV NET NET REALIZED/ TOTAL FROM FROM NET REALIZED AND TOTAL
BEGINNING INVESTMENT UNREALIZED INVESTMENT INVESTMENT UNREALIZED DIVIDENDS AND
OF PERIOD INCOME GAINS/(LOSSES) ACTIVITIES INCOME GAINS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT ASSETS FUND "T" SHARES
Year Ended March 31, 1999 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Year Ended March 31, 1998 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Year Ended March 31, 1997 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Year Ended March 31, 1996 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Year Ended March 31, 1995 $ 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04)
LIQUID ASSETS FUND "T" SHARES
Year Ended March 31, 1999 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Nine Months Ended March 31, 1998 $ 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04)
January 2, 1997 to June 30, 1997* $ 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03)
MUNICIPAL ASSETS FUND "T" SHARES
Year Ended March 31, 1999 $ 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03)
Nine Months Ended March 31, 1998 $ 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02)
January 2, 1997 to June 30, 1997* $ 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02)
LIMITED TERM BOND FUND
Year Ended March 31, 1999 $ 9.99 0.49 0.00 0.49 (0.48) 0.00 (0.48)
Year Ended March 31, 1998 $ 9.69 0.46 0.35 0.81 (0.51)(C) 0.00 (0.51)
Year Ended March 31, 1997 $ 9.89 0.50 (0.20) 0.30 (0.50) 0.00 (0.50)
June 15, 1995 to March 31, 1996* $10.00 0.44 (0.11) 0.33 (0.43) (0.01) (0.44)
BOND FUND
Year Ended March 31, 1999 $ 9.86 0.53 0.04 0.57 (0.53) (0.02) (0.55)
Eleven Months Ended March 31, 1998 $ 9.82 0.66 0.33 0.99 (0.66) (0.29) (0.95)
Year Ended April 30, 1997 $ 9.78 0.62 0.05 0.67 (0.62) 0.00 (0.62)
July 7, 1995 to April 30, 1996* $10.00 0.49 (0.28) 0.21 (0.43) (0.00) (0.43)
INCOME FUND
Year Ended March 31, 1999 $10.04 0.55 (0.04) 0.51 (0.57)(D) 0.00 (0.57)
Year Ended March 31, 1998 $ 9.70 0.50 0.38 0.88 (0.54)(C) 0.00 (0.54)
Year Ended March 31, 1997 $ 9.93 0.54 (0.24) 0.30 (0.53) 0.00 (0.53)
Year Ended March 31, 1996 $ 9.71 0.61 0.23 0.84 (0.62) 0.00 (0.62)
Year Ended March 31, 1995 $ 9.92 0.54 (0.22) 0.32 (0.53) 0.00 (0.53)
MUNICIPAL BOND FUND
Year Ended March 31, 1999 $10.60 0.40 0.08 0.48 (0.40) (0.01) (0.41)
Year Ended March 31, 1998 $10.22 0.40 0.40 0.80 (0.40) (0.02) (0.42)
Year Ended March 31, 1997 $10.27 0.38 (0.05) 0.33 (0.38) 0.00 (0.38)
Year Ended March 31, 1996 $ 9.97 0.43 0.30 0.73 (0.43) 0.00 (0.43)
Year Ended March 31, 1995 $ 9.91 0.43 0.07 0.50 (0.43) (0.01) (0.44)
BALANCED FUND
Year Ended March 31, 1999 $15.05 0.24 1.60 1.84 (0.24) (0.64) (0.88)
Year Ended March 31, 1998 $11.72 0.21 3.67 3.88 (0.21) (0.34) (0.55)
Year Ended March 31, 1997 $11.08 0.18 1.05 1.23 (0.18) (0.41) (0.59)
June 1, 1995 to March 31, 1996* $10.00 0.24 1.08 1.32 (0.24) 0.00 (0.24)
EQUITY FUND "S" SHARES
Year Ended March 31, 1999 $21.04 (0.06) 3.21 3.15 (0.01) (1.28) (1.29)
Year Ended March 31, 1998 $16.58 0.00 7.19 7.19 (0.01) (2.71) (2.72)
Year Ended March 31, 1997 $14.48 0.05 2.60 2.65 (0.05) (0.50) (0.55)
Year Ended March 31, 1996 $11.44 0.13 3.27 3.40 (0.13) (0.23) (0.36)
Year Ended March 31, 1995 $10.05 0.15 1.41 1.56 (0.15) (0.02) (0.17)
AGGRESSIVE GROWTH FUND
Year Ended March 31, 1999 $16.99 (0.11) 1.70 1.59 0.00 (0.95) (0.95)
Year Ended March 31, 1998 $11.90 (0.09) 5.61 5.52 0.00 (0.43) (0.43)
Year Ended March 31, 1997 $10.88 (0.06) 1.08 1.02 0.00 0.00 0.00
Sept. 29, 1995 to March 31, 1996* $10.00 0.00 0.90 0.90 0.00 (0.02) (0.02)
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN / RATIOS / SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
RATIO OF INVESTMENT RATIO OF NET INVESTMENT
NAV NET ASSETS EXPENSES TO INCOME EXPENSES INCOME
END OF TOTAL END OF PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE PORTFOLIO
PERIOD RETURN (000 OMITTED) NET ASSETS NET ASSETS NET ASSETS** NET ASSETS TURNOVER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT ASSETS FUND "T" SHARES
Year Ended March 31, 1999 $ 1.00 4.61% $150,006 0.73% 4.49% 0.76% 4.46% N/A
Year Ended March 31, 1998 $ 1.00 4.72% $155,130 0.73% 4.79% 0.98% 4.54% N/A
Year Ended March 31, 1997 $ 1.00 4.62% $158,698 0.76% 4.53% 1.01% 4.28% N/A
Year Ended March 31, 1996 $ 1.00 5.24% $153,836 0.54% 5.08% 0.72% 4.90% N/A
Year Ended March 31, 1995 $ 1.00 4.32% $137,888 0.50% 4.26% 0.98% 3.78% N/A
LIQUID ASSETS FUND "T" SHARES
Year Ended March 31, 1999 $ 1.00 4.70% $33,673 0.84% 4.54% -- -- N/A
Nine Months Ended March 31, 1998 $ 1.00 3.81%(a) $16,147 0.70%(b) 5.07%(b) -- -- N/A
January 2, 1997 to June 30, 1997* $ 1.00 2.51%(a) $17,859 0.70%(b) 4.96%(b) -- -- N/A
MUNICIPAL ASSETS FUND "T" SHARES
Year Ended March 31, 1999 $ 1.00 2.73% $14,949 0.87% 2.66% 0.94%* 2.59%* N/A
Nine Months Ended March 31, 1998 $ 1.00 2.31%(a) $12,005 0.69%(b) 3.09%(b) -- -- N/A
January 2, 1997 to June 30, 1997* $ 1.00 1.61%(a) $25,036 0.66%(b) 3.17%(b) 0.90% 2.93% N/A
LIMITED TERM BOND FUND
Year Ended March 31, 1999 $10.00 5.01% $56,005 1.05% 4.89% -- -- 31.08%
Year Ended March 31, 1998 $ 9.99 8.51% $37,777 1.35% 4.60% 1.60% 4.35% 80.26%
Year Ended March 31, 1997 $ 9.69 3.13% $38,835 1.40% 5.18% 1.65% 4.93% 70.63%
June 15, 1995 to March 31, 1996* $ 9.89 3.40%(a) $41,178 1.18%(b) 5.53%(b) 1.18%(b) 5.53%(b) 69.30%
BOND FUND
Year Ended March 31, 1999 $ 9.88 5.95% $ 21,984 1.03% 5.46% -- -- 37.28%
Eleven Months Ended March 31, 1998 $ 9.86 10.30%(a) $ 7,213 0.88%(b) 7.66%(b) -- -- 225.79%
Year Ended April 30, 1997 $ 9.83 6.97% $ 3,201 0.83% 6.16% -- -- 42.22%
July 7, 1995 to April 30, 1996* $ 9.78 2.10%(a) $ 3,642 0.80%(b) 6.24%(b) -- -- 60.43%
INCOME FUND
Year Ended March 31, 1999 $9.98 5.13% $100,341 1.01% 5.51% -- -- 60.60%
Year Ended March 31, 1998 $10.04 9.31% $104,604 1.15% 5.04% 1.40% 4.79% 52.03%
Year Ended March 31, 1997 $ 9.70 3.14% $92,031 1.20% 5.52% 1.45% 5.27% 59.70%
Year Ended March 31, 1996 $ 9.93 8.74% $84,752 0.97% 5.77% 0.97% 5.77% 113.25%
Year Ended March 31, 1995 $ 9.71 3.46% $81,673 0.94% 5.53% 1.22% 5.26% 32.38%
MUNICIPAL BOND FUND
Year Ended March 31, 1999 $10.67 4.64% $49,950 0.94% 3.76% 1.04% 3.66% 13.87%
Year Ended March 31, 1998 $10.60 7.89% $48,282 1.21% 3.76% 1.46% 3.51% 36.60%
Year Ended March 31, 1997 $10.22 3.22% $45,164 1.28% 3.68% 1.53% 3.43% 21.00%
Year Ended March 31, 1996 $10.27 7.43% $42,436 0.75% 4.21% 1.02% 3.94% 14.21%
Year Ended March 31, 1995 $ 9.97 5.29% $30,717 0.73% 4.42% 1.30% 3.84% 5.77%
BALANCED FUND
Year Ended March 31, 1999 $16.01 12.66% $85,424 1.27% 1.61% -- -- 48.38%
Year Ended March 31, 1998 $15.05 33.46% $63,403 1.38% 1.58% 1.63% 1.33% 101.32%
Year Ended March 31, 1997 $11.72 11.05% $32,012 1.55% 1.58% 1.80% 1.33% 38.35%
June 1, 1995 to March 31, 1996* $11.08 13.29%(a) $13,516 1.32%(b) 2.66%(b) 1.32%(b) 2.66%(b) 61.72%
EQUITY FUND "S" SHARES
Year Ended March 31, 1999 $22.90 15.72% $253,593 1.40% (0.34%) -- -- 59.22%
Year Ended March 31, 1998 $21.05 45.54% $196,772 1.31% 0.08% 1.56% 0.33% 72.80%
Year Ended March 31, 1997 $16.58 18.35% $309,669 1.33% 0.32% 1.58% 0.07% 37.08%
Year Ended March 31, 1996 $14.48 29.96% $210,950 1.09% 0.96% 1.09% 0.96% 33.23%
Year Ended March 31, 1995 $11.44 15.74% $149,233 1.07% 1.47% 1.35% 1.19% 20.54%
AGGRESSIVE GROWTH FUND
Year Ended March 31, 1999 $17.63 9.85% $121,552 1.42% (0.69%) -- -- 61.90%
Year Ended March 31, 1998 $16.99 46.82% $101,377 1.56% (0.74%) 1.81% (0.99%) 86.36%
Year Ended March 31, 1997 $11.90 9.39% $49,413 1.63% (0.64%) 1.88% (0.89%) 45.14%
Sept. 29, 1995 to March 31, 1996* $10.88 9.10%(a) $ 23,319 1.57%(b) 0.08%(b) 1.57%(b) 0.08%(b) 4.31%
</TABLE>
* Period from commencement of operations
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized
(b) Annualized
(c) Includes 0.04 per share and 0.02 per share of distributions in excess of net
investment income for Limited Term Bond and Income Fund, respectively, for
year ended March 31, 1998.
(d) Includes $.01 per share of distribution in excess of net investment income.
-35-
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT ACTIVITIES DISTRIBUTIONS
--------------------------------------------------- ----------------------------------------
FROM NET
NAV NET NET REALIZED/ TOTAL FROM FROM NET REALIZED AND TOTAL
BEGINNING INVESTMENT UNREALIZED INVESTMENT INVESTMENT UNREALIZED DIVIDENDS AND
OF PERIOD INCOME GAINS/(LOSSES) ACTIVITIES INCOME GAINS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LIQUID ASSETS FUND "S" SHARES
Year Ended March 31, 1999 $ 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04)
Nine Months Ended March 31, 1998 $ 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03)
Year Ended June 30, 1997 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Year Ended June 30, 1996 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Year Ended June 30, 1995 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
LIQUID ASSETS FUND "S2" SHARES
Year Ended March 31, 1999 $ 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04)
Nine Months Ended March 31, 1998 $ 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04)
February 27, 1997 to June 30, 1997* $ 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02)
LIQUID ASSETS FUND "I" SHARES
Year Ended March 31, 1999 $ 1.00 0.05 0.00 0.05 (0.05) 0.00 (0.05)
Nine Months Ended March 31, 1998 $ 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04)
October 29, 1996 to June 30, 1997* $ 1.00 0.04 0.00 0.04 (0.04) 0.00 (0.04)
MUNICIPAL ASSETS FUND "S" SHARES
Year Ended March 31, 1999 $ 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02)
Nine Months Ended March 31, 1998 $ 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02)
Year Ended June 30, 1997 $ 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03)
Year Ended June 30, 1996 $ 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03)
Year Ended June 30, 1995 $ 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03)
MUNICIPAL ASSETS FUND "I" SHARES
Year Ended March 31, 1999 $ 1.00 0.03 0.00 0.03 (0.03) 0.00 (0.03)
Nine Months Ended March 31, 1998 $ 1.00 0.02 0.00 0.02 (0.02) 0.00 (0.02)
March 27, 1997 to June 30, 1997* $ 1.00 0.01 0.00 0.01 (0.01) 0.00 (0.01)
EQUITY FUND T SHARES
Year Ended March 31, 1999 $21.05 (0.01) 3.19 3.18 (0.01) (1.28) (1.29)
February 14, 1998 to March 31, 1998* $19.77 0.00 1.28 1.28 0.00 0.00 0.00
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
TOTAL RETURN / RATIOS / SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
RATIO OF RATIO OF
RATIO OF INVESTMENT RATIO OF NET INVESTMENT
NAV NET ASSETS EXPENSES TO INCOME EXPENSES INCOME
END OF TOTAL END OF PERIOD TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE PORTFOLIO
PERIOD RETURN (000 OMITTED) NET ASSETS NET ASSETS NET ASSETS** NET ASSETS TURNOVER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIQUID ASSETS FUND "S" SHARES
Year Ended March 31, 1999 $ 1.00 4.06% $ 77,343 1.34% 4.06% -- -- N/A
Nine Months Ended March 31, 1998 $ 1.00 3.43% $ 69,514 1.20%(b) 4.57%(b) -- -- N/A
Year Ended June 30, 1997 $ 1.00 4.46% $ 60,663 1.20% 4.46% -- -- N/A
Year Ended June 30, 1996 $ 1.00 4.68% $179,633 1.20% 4.68% -- -- N/A
Year Ended June 30, 1995 $ 1.00 4.66% $167,085 1.20% 4.66% -- -- N/A
LIQUID ASSETS FUND "S2" SHARES
Year Ended March 31, 1999 $ 1.00 4.31% $ 8,252 1.09% 4.31% -- -- N/A
Nine Months Ended March 31, 1998 $ 1.00 3.68%(a) $ 5,453 0.87%(b) 4.91%(b) -- -- N/A
February 27, 1997 to June 30,
1997* $ 1.00 1.66%(a) $ 1,773 0.85%(b) 4.79%(b) 0.95% 4.69% N/A
LIQUID ASSETS FUND "I" SHARES
Year Ended March 31, 1999 $ 1.00 4.71% $ 16,751 0.84% 4.56% -- -- N/A
Nine Months Ended March 31, 1998 $ 1.00 3.98%(a) $ 13,729 0.47%(b) 5.31%(b) -- -- N/A
October 29, 1996 to June 30, 1997* $ 1.00 3.51%(a) $ 2,356 0.45%(b) 5.19%(b) -- -- N/A
MUNICIPAL ASSETS FUND "S" SHARES
Year Ended March 31, 1999 $ 1.00 2.41% $ 7,894 1.12% 2.41% -- -- N/A
Nine Months Ended March 31, 1998 $ 1.00 2.13%(a) $ 7,102 0.94%(b) 2.84%(b) -- -- N/A
Year Ended June 30, 1997 $ 1.00 2.90% $ 4,664 0.93% 2.90% 1.15% 2.68% N/A
Year Ended June 30, 1996 $ 1.00 2.64% $ 10,146 1.48% 2.64% -- -- N/A
Year Ended June 30, 1995 $ 1.00 2.53% $ 16,130 1.38% 2.53% -- -- N/A
MUNICIPAL ASSETS FUND "I" SHARES
Year Ended March 31, 1999 $ 1.00 2.88% $ 22,405 0.72% 2.81% 0.79% 2.74% N/A
Nine Months Ended March 31, 1998 $ 1.00 2.49%(a) $ 20,010 0.46%(b) 3.32%(b) -- -- N/A
March 27, 1997 to June 30, 1997* $ 1.00 1.20%(a) $ 7 0.41%(b) 3.42%(b) 0.65% 3.18% N/A
EQUITY FUND T SHARES
Year Ended March 31, 1999 $22.94 15.88% $280,418 1.15% (0.08%) -- -- 59.22%
February 14, 1998 to March 31,
1998* $21.05 6.40%(a) $275,245 1.19%(b) 0.63% 1.44%(b) 0.38%(b) 72.80%
</TABLE>
* Period from commencement of operations
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized
(b) Annualized
(c) Includes 0.04 per share and 0.02 per share of distributions in excess of net
investment income for Limited Term Bond and Income Fund, respectively, for
year ended March 31, 1998.
-37-
<PAGE>
Government Assets Fund - "S" and "T" Shares
Liquid Assets Fund - "S", "S2", "T" and "I" Shares
Municipal Assets Fund - "S", "T" and "I" Shares"
Vintage Limited Term Bond Fund
Vintage Bond Fund
Vintage Income Fund
Vintage Municipal Bond Fund
Vintage Balanced Fund
Vintage Equity Fund - "S" and "T" Shares
Vintage Aggressive Growth Fund
Each an Investment Portfolio of the Vintage Mutual Funds, Inc.
STATEMENT OF ADDITIONAL INFORMATION
[________], 1999
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the prospectuses for the Government Assets Fund -
"S" and "T" shares ("Government Assets"), the Liquid Assets Fund - "S", "S2",
"T" and "I" shares ("Liquid Assets"), the Municipal Assets Fund - "S", "T" and
"I" shares ("Municipal Assets"), the Vintage Limited Term Bond Fund (the
"Limited Term Bond Fund"), the Vintage Bond Fund (the "Bond Fund"), the Vintage
Income Fund (the "Income Fund"), the Vintage Municipal Bond Fund (the "Municipal
Bond Fund"), the Vintage Balanced Fund (the "Balanced Fund"), the Vintage Equity
Fund - "S" and "T" shares (the "Equity Fund"), and the Vintage Aggressive Growth
Fund (the "Aggressive Growth Fund") each dated the same date as the date hereof
(the "Prospectus"), hereinafter referred to collectively as the "Funds" and
singly, a "Fund". This SAI is incorporated in its entirety into the Prospectus.
Copies of the Prospectus may be obtained by writing the Funds at BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43129 or by calling 1-800-438-6375.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Additional Information on Portfolio Instruments
Investment Restrictions
Portfolio Turnover
NET ASSET VALUE
Valuation of the Government Assets, Liquid Assets
and Municipal Assets Funds
Valuation of the Variable NAV Funds
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
MANAGEMENT OF THE COMPANY
Directors and Officers
Investment Adviser
Portfolio Transactions
Banking Laws
Administrator
Distributor
Administrative Services Plan
Custodian
Transfer Agency and Fund Accounting Services
Independent Auditors
Legal Counsel
ADDITIONAL INFORMATION
Description of Shares
Shareholder Meetings
Vote of a Majority of the Outstanding Shares
Additional Tax Information
Additional Tax Information Concerning the Municipal Assets
and Municipal Bond Funds
Yields and Total Returns of the Government Assets, Liquid
Assets and Municipal Assets Funds
Yields and Total Returns of the Variable NAV Funds
Performance Comparisons
Principal Shareholders
Miscellaneous
FINANCIAL STATEMENTS
APPENDIX A
APPENDIX B
2
<PAGE>
GENERAL INFORMATION
Vintage Mutual Funds, Inc. (the "Company") is an open-end management
investment company which currently offers it shares in series representing ten
investment portfolios: Government Assets, Liquid Assets, Municipal Assets,
Limited Term Bond, Bond, Income, Municipal Bond, Balanced, Equity, and
Aggressive Growth Funds (individually a "Fund" and collectively the "Funds").
The Company was organized on November 16, 1994 under the laws of Maryland.
Shares of some of the Funds may also be issued in classes with differing
distribution and shareholder servicing arrangements (a "Class"). Subject to the
Class level expenses, each share of a Fund ("shares") represents an equal
proportionate interest in a Fund with other shares of the same Fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that Fund, subject to the class level expenses, as are
declared at the discretion of the Directors. Investors Management Group, Ltd.
("IMG") acts as the Company's investment adviser and provides various other
services to the Funds. No investment in shares of a Fund should be made without
first reading the Prospectus. References to the "Variable NAV Funds" shall mean
all of the Funds except the Government Assets, Liquid Assets, and Municipal
Assets Funds.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objective and policies of the
Funds as set forth in their respective Prospectuses.
AVERAGE MATURITY The average maturity of the Limited Term Bond, Bond, Income,
and Municipal Bond Funds, as well as the fixed income portion of the Balanced
Fund, represents a weighted average based on the stated maturity dates of each
Fund's fixed income securities, except that (i) variable-rate securities are
deemed to mature at the next interest rate adjustment date, (ii) debt securities
with put features are deemed to mature at the next put exercise date, and (iii)
the maturity of mortgage-backed and asset-backed securities which experience
periodic principal repayments is determined on an "expected life" basis.
BANK OBLIGATIONS. Each Fund, with the exception of the Government Assets Fund,
may invest in bank obligations such as bankers' acceptances, certificates of
deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Bankers' acceptances invested in by
the Funds will be those guaranteed by domestic and foreign banks having, at the
time of investment, capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of investment the depository institution has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Issues of commercial paper normally have maturities of less
than nine months and fixed rates of return.
3
<PAGE>
The Limited Term Bond, Bond, Income, Municipal Bond, Balanced, Equity and
Aggressive Growth Funds may purchase commercial paper consisting of issues rated
at the time of purchase within the two highest rating categories by a nationally
recognized statistical rating organization (an "NRSRO"). These Funds may also
invest in commercial paper that is not rated but is determined by IMG under
guidelines established by the Company's Board of Directors, to be of comparable
quality.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes, in
which the Limited Term Bond, Bond, Income, Municipal Bond and Balanced Funds may
invest, are unsecured demand notes that permit the indebtedness thereunder to
vary and provide for periodic readjustments in the interest rate according to
the terms of the instrument. They are also referred to as variable rate demand
notes. Because master demand notes are direct lending arrangements between a
Fund and the issuer, they are not normally traded. Although there is no
secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time or during specified periods not exceeding one year,
depending upon the instrument involved, and may resell the note at any time to a
third party. IMG will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status and ability to meet payment on demand. In determining
dollar-weighted average portfolio maturity, a variable amount master demand note
will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest rate adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
ILLIQUID SECURITIES. The Funds may invest up to 10 percent of its net assets in
illiquid securities. For purposes of this restriction, illiquid securities
include restricted securities (securities the disposition of which is restricted
under the federal securities laws, such as private placements), other securities
without readily available market quotations (including options traded in the
over-the-counter market, and interest-only and principal-only stripped
mortgage-backed securities), and repurchase agreements maturing in more than
seven days. Risks associated with restricted securities include the potential
obligation to pay all or part of the registration expenses in order to see
certain restricted securities. A considerable period of time may elapse between
the time of the decision to sell a security and the time the Fund may be
permitted to sell it under an effective registration statement. If during such a
period, adverse conditions were to develop, the Fund might obtain a less
favorable price than that prevailing when it decided to sell.
The Board of Directors has the ultimate authority to determine, to the extent
permissible under the federal securities laws, which securities are liquid or
illiquid for purposes of the 10 percent limitation. Certain securities exempt
from registration or issued in transactions exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), may be considered
liquid. The Board of Directors has delegated to the Advisor the day-to-day
determination of the liquidity of a security, although it has retained oversight
and ultimate responsibility for such determinations. Although no definitive
liquidity criteria are used, the Board of Directors has directed the Advisor to
look to such factors as (i) the nature of the market for a security (including
the institutional private resale market), (ii) the terms of certain securities
or other instruments allowing for the disposition to a third party or the issuer
thereof (e.g., certain repurchase obligations and demand instruments), (iii) the
availability of market quotations, and (iv) other permissible relevant factors.
Certain securities, such as repurchase obligations maturing in more than seven
days and other securities that are not readily marketable, are currently
considered illiquid.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the Fund
may be permitted to
4
<PAGE>
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in good faith by the Board of
Directors. If through the appreciation of illiquid securities or the
depreciation of liquid securities, the Fund should be in a position where more
than 10 percent of the value of its net assets are invested in illiquid assets,
including restricted securities which are not readily marketable, the Fund will
take steps as deemed advisable, if any, to protect liquidity.
VARIABLE AND FLOATING RATE SECURITIES. Government Assets, Liquid Assets,
Municipal Assets, Limited Term Bond, Bond, Income, Municipal Bond and Balanced
Funds may acquire variable and floating rate securities, subject to such Fund's
investment objective, policies and restrictions. Variable rate securities
provide for automatic establishment of a new interest rate at fixed intervals
(e.g., daily, monthly, semi-annually, etc.). Floating rate securities provide
for automatic adjustment of the interest rate whenever some specified interest
rate index changes. The interest rate on variable or floating rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime rate,
the 90-day U.S. Treasury bill rate, the rate of return on commercial paper or
bank certificates of deposit, an index of short-term interest rates, or some
other objective measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time on seven days' notice; in other
cases, the demand feature is exercisable at any time on 30 days' notice or
similar notice at intervals of not more than one year. Securities with a demand
feature exercisable over a period in excess of seven days are considered to be
illiquid. (See "Illiquid Securities" above.) Some securities, which do not have
variable or floating interest rates, may be accompanied by puts producing
similar results and price characteristics.
Variable rate demand notes include master demand notes which are obligations
that permit the Fund to invest fluctuating amounts, which may change daily
without penalty, pursuant to direct arrangements between the Fund, as lender,
and the borrower. The interest rates on these notes fluctuate from time to time.
The issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion, the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, letters of credit or other credit support arrangements
provided by banks secure such obligations. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments will generally be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value. Accordingly, where these obligations are not secured by letters
of credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit rating agencies. If
not so rated, the Fund may invest in them only if the Advisor determines that at
the time of investment the obligations are of comparable quality to the other
obligations in which the Fund may invest. The Advisor, on behalf of the Fund,
will consider on an ongoing basis the creditworthiness of the issuers of the
floating and variable rate demand obligations owned by the Fund.
U.S. GOVERNMENT OBLIGATIONS. The Government Assets Fund will invest exclusively
in short-term U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities subject
to its investment objective and policies (collectively, "U.S. Government
Obligations"). The Liquid Assets and Municipal Assets Funds, as well as the
Variable NAV Funds may also invest
5
<PAGE>
in U.S. Government Obligations. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it were not obligated to
do so by law. A Fund will invest in the obligations of such agencies or
instrumentalities only when IMG believes that the credit risk with respect
thereto is minimal.
STRIPPED TREASURY SECURITIES. The Variable NAV Funds may invest in certain U.S.
Government Obligations referred to as "Stripped Treasury Securities." Stripped
Treasury Securities are U.S. Treasury securities that have been stripped of
their unmatured interest coupons (which typically provide for interest payments
semi-annually), interest coupons that have been stripped from such U.S. Treasury
securities, and receipts and certificates for such stripped debt obligations and
stripped coupons. Stripped bonds and stripped coupons are sold at a deep
discount because the buyer of those securities receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest payments on the security.
Stripped Treasury Securities will include coupons that have been stripped from
U.S. Treasury bonds, which may be held through the Federal Reserve Bank's
book-entry system called "Separate Trading of Registered Interest and Principal
of Securities" ("STRIPS") or through a program entitled "Coupon Under Book-Entry
Safekeeping" ("CUBES").
The U.S. Government does not issue Stripped Treasury Securities directly. The
STRIPS program, which is ongoing, is designed to facilitate the secondary market
in the stripping of selected U.S. Treasury notes and bonds into separate
interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.
Cubes, like STRIPS, are direct obligations of the U.S. Government. CUBES are
coupons that have previously been physically stripped from U.S. Treasury notes
and bonds, but which were deposited with the Federal Reserve Bank's book-entry
system and are now carried and transferable in book-entry form only. Only
stripped U.S. Treasury coupons maturing on or after January 15, 1988, which were
stripped prior to January 5, 1987, were eligible for conversion to book-entry
form under the CUBES program.
By agreement, the underlying debt obligations will be held separate from the
general assets of the custodian and nominal holder of such securities, and will
not be subject to any right, charge, security interest, lien or claim of any
kind in favor of or against the custodian or any person claiming through the
custodian, and the custodian will be responsible for applying all payments
received on those underlying debt obligations to the related receipts or
certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
parties in interest, are entitled to the rights and privileges of the underlying
debt obligations, including the right, in the event of default in payment of
principal or interest to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
6
<PAGE>
FOREIGN INVESTMENTS. The Limited Term Bond, Bond, Income, Balanced, Equity and
Aggressive Growth Funds may, subject to their respective investment objectives
and policies, invest in certain obligations or securities of foreign issuers.
Permissible investments include American Depository Receipts ("ADRs") for the
Balanced, Equity and Aggressive Growth Funds and Yankee Obligations (as
described in the Prospectus) for the Limited Term Bond, Bond, Income, Balanced
and Aggressive Growth Funds. Investment in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including ADRs may
subject such Funds to investment risks that differ in some respects from those
related to investment in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, possible seizure,
nationalization, or expropriation of foreign investments, less stringent
disclosure requirements, the possible establishment of exchange controls or
taxation at the source or other taxes, and the adoption of other foreign
governmental restrictions.
Additional risks include less publicly available information, the risk that
companies may not be subject to the accounting, auditing and financial reporting
standards and requirements of U.S. companies, the risk that foreign securities
markets may have less volume and therefore many securities traded in these
markets may be less liquid and their prices more volatile than U.S. securities,
and the risk that custodian and brokerage costs may be higher. Foreign issuers
of securities or obligations are often subject to accounting treatment and
engage in business practices different from those respecting domestic issuers of
similar securities or obligations. Foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
FUTURES CONTRACTS. The Funds may invest in futures contracts and options on
futures contracts to the extent permitted by the Commodity Futures Trading
Commission ("CFTC") and the Commission and thus will engage in such transactions
solely for bona fide hedging purposes to manage risk associated with various
portfolio securities and not for speculative purposes. Such transactions,
including stock or bond index futures contracts, or options thereon, act as a
hedge to protect a Fund from fluctuations in the value of its securities caused
by anticipated changes in interest rate or market conditions without necessarily
buying or selling the securities. Hedging is a specialized investment technique
that entails skills different from other investment management. A stock or bond
index futures contract is an agreement in which one party agrees to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value (which assigns relative values to the common
stock or bonds included in the index) at the close of the last trading day of
the contract and the price at which the agreement is originally made. No
physical delivery of the underlying stock or bond in the index is contemplated.
Similarly, it may be in the best interest of a Fund to purchase or sell interest
rate futures contracts, or options thereon, which provide for the future
delivery of specified securities.
The purchase and sale of futures contracts or related options will not be a
primary investment technique of the Funds. The Funds will not purchase or sell
futures contracts (or related options thereon) if, immediately after purchase,
the aggregate initial margin deposits and premiums paid by a Fund on its open
futures and options positions, exceeds 5% of the liquidation value of the Fund
after taking into account any unrealized profits and unrealized losses on any
such futures or related options contracts into which it has entered.
To enter into a futures contract, an amount of cash and cash equivalents, equal
to the market value of the futures contracts, is deposited in a segregated
account with the Fund's Custodian and/or in a margin account with a broker to
collateralize the position and thereby ensure that the use of such futures is
unleveraged. Positions in futures contracts may be closed out only on an
exchange that provides a secondary market for such futures. However, there can
be no assurance that a liquid secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price
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movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund had insufficient
cash, it might have to sell portfolio securities to meet daily margin
requirements at a time when it would be disadvantageous to do so. In addition, a
Fund might be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to hedge or manage risks
effectively.
Successful use of futures by a Fund is also subject to the Adviser's ability to
predict movements correctly in the direction of the market. There is an
imperfect correlation between movements in the price of the future and movements
in the price of the securities that are the subject of the hedge. In addition,
the price of futures may not correlate perfectly with movement in the cash
market due to certain market distortions. Due to the possibility of price
distortion in the futures market and because of the imperfect correlation
between the movements in the cash market and movements in the price of futures,
a correct forecast of general market trends or interest rate movements by the
Adviser may still not result in a successful hedging transaction over a short
time frame.
The trading of futures contracts is also subject to the risk of trading halts,
suspension, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruption of normal trading activity, which could at times make it difficult or
impossible to liquidate existing position or to recover excess variation margin
payments.
CALL OPTIONS. The Bond, Balanced, Equity and Aggressive Growth Funds may write
(sell) "covered" call options and purchase options to close out options
previously written by them. Such options must be listed on a National Securities
Exchange and issued by the Options Clearing Corporation. The purpose of writing
covered call options is to generate additional premium income for a Fund. This
premium income will serve to enhance the Fund's total return and will reduce the
effect of any price decline of the security involved in the option. Covered call
options will generally be written on securities which, in IMG's opinion, are not
expected to make any major price moves in the near future but which, over the
long term, are deemed to be attractive investments for a Fund.
A call option gives the holder (buyer) the "right to purchase" a security at a
specified price (the exercise price) at any time until a certain date (the
expiration date). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise notice by the broker-dealer through
whom such option was sold, requiring him to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, or such earlier time at which the writer effects
a closing purchase transaction by repurchasing an option identical to that
previously sold. To secure his obligation to deliver the underlying security in
the case of a call option, a writer is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Options
Clearing Corporation. A Fund will write only covered call options. (In order to
comply with the requirements of the securities laws in several states, a Fund
will not write a covered call option if, as a result, the aggregate market value
of all portfolio securities covering all call options exceeds 15% of the market
value of its net assets.)
Fund securities on which call options may be written will be purchased solely on
the basis of investment considerations consistent with a Fund's investment
objective. The writing of covered call options is a conservative investment
technique believed to involve relatively little risk (in contrast to the writing
of naked or uncovered options, which the Funds will not do), but capable of
enhancing a Fund's total return. When writing a covered call option, a Fund, in
return for the premium, gives up the opportunity for profit from a price
increase in the underlying security above the exercise price, but retains the
risk of loss should the price of the security decline. Unlike one who owns
securities not subject to an option, a Fund has no control over when it may be
required to sell the underlying securities, since it may be assigned an exercise
notice at any time prior to the expiration of its
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obligation as a writer. If a call option which a Fund has written expires, the
Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying security during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security. The security covering the call
will be maintained in a segregated account of a Fund's Custodian. The Funds do
not consider a security covered by a call to be "pledged" as that term is used
in each Fund's policy, which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium a Fund will
receive from writing a call option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise price
to such market price, the historical price volatility of the underlying
security, and the length of the option period. Once the decision to write a call
option has been made, IMG in determining whether a particular call option should
be written on a particular security, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for such option. The premium received by a Fund for writing covered call options
will be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the net
asset value per share of a Fund is computed (close of the New York Stock
Exchange), or, in the absence of such sale, the latest asked price. The
liability will be extinguished upon expiration of the option, the purchase of an
identical option in a closing transaction, or delivery of the underlying
security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security. There is, of course, no assurance
that a Fund will be able to effect such closing transactions at a favorable
price. If a Fund cannot enter into such a transaction, it may be required to
hold a security that it might otherwise have sold, in which case it would
continue to be at market risk on the security. This could result in higher
transaction costs. The Funds will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by a Fund will normally have expiration dates of less than
nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
at the time the options are written. From time to time, a Fund may purchase an
underlying security for delivery in accordance with an exercise notice of a call
option assigned to it, rather than delivering such security from its portfolio.
In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by the
Fund.
PUT OPTIONS. The Municipal Bond Fund may acquire "puts" with respect to
Municipal Securities held in its portfolio and the Limited Term Bond, Bond,
Income and Balanced Funds may acquire "puts" with respect to debt securities
held in their portfolios. A put is a right to sell or redeem a specified
security (or securities) at a certain time or within a certain period of time at
a specified exercise price. The put may be an independent feature or may be
combined with a reset feature that
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is designed to reduce downward price volatility as interest rates rise by
enabling the holder to liquidate the investment prior to maturity.
The amount payable to a Fund upon its exercise of a "put" is normally (i) the
Fund's acquisition cost of the securities subject to the put (excluding any
accrued interest which the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of the portfolio
assets. Puts may also be used to facilitate that reinvestment of assets at a
rate of return more favorable than that of the underlying security. Puts may,
under certain circumstances, also be used to shorten the maturity of underlying
variable rate or floating rate securities for purposes of calculating the
remaining maturity of those securities and the dollar-weighted average portfolio
maturity of a Fund's assets.
The Limited Term Bond, Bond, Income, Municipal Bond and Balanced Funds will, if
necessary or advisable, pay for puts either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
WHEN-ISSUED SECURITIES. Each of the Funds may purchase securities on a
when-issued or delayed-delivery basis. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield and thereby involve a risk that the yield obtained in the transaction will
be less than those available in the market when delivery takes place. A Fund
will generally not pay for such securities or start earning interest on them
until they are received. When a Fund agrees to purchase securities on a
when-issued basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a segregated account.
Normally, the Custodian will set aside portfolio securities to satisfy the
purchase commitment, and in such a case, the Fund may be required subsequently
to place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that the Fund's net assets will fluctuate to a greater degree
when it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. In addition, because a Fund will set aside cash or
liquid portfolio securities to satisfy its purchase commitments in the manner
described above, the Fund's liquidity and the ability of IMG to manage it might
be affected in the event its commitments to purchase when-issued securities ever
exceeded 25% of the value of its total assets.
When a Fund engages in when issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered
advantageous. The Funds will engage in when issued delivery transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives and policies, not for investment leverage.
Each of the Funds' commitment to purchase when-issued securities will not
exceed 25%, of their total assets absent unusual market conditions. Each of
the Funds does not intend to purchase when-issued securities for speculative
purposes but only in furtherance of its investment objectives.
MORTGAGE-RELATED SECURITIES. The Limited Term Bond, Bond, Income and Balanced
Funds may, consistent with their respective investment objectives and policies,
invest in mortgage-related securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Mortgage-related securities,
for purposes of the Prospectus and this SAI, represent pools of mortgage loans
assembled for sale to
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investors by various governmental agencies such as the Government National
Mortgage Association and government-related organizations such as the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation, as
well as by nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If a Fund purchases a mortgage-related security at
a premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of such securities are inversely affected by changes in interest
rates. However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the average life of the security and shortening
the period of time over which income at the higher rate is received. Conversely,
when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the average life of the security and lengthening the period
of time over which income at the lower rate is received. For these and other
reasons, a mortgage-related security's average maturity may be shortened or
lengthened as a result of interest rate fluctuations and, therefore, it is not
possible to predict accurately the security's return to the Fund. In addition,
regular payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow Funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. The
FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the principal
and interest by FNMA. Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
The Limited Term Bond, Bond, Income and Balanced Funds may also invest in
mortgage-related securities which are collateralized mortgage obligations
("CMOs") structured on pools of mortgage pass-through certificates or mortgage
loans. CMOs will be purchased only if they meet the rating requirements with
respect to each of the Funds' investments in debt securities of U.S.
corporations. The CMOs in which these Funds may invest represent securities
issued by a private corporation or a U.S. Government instrumentality that are
backed by a portfolio of mortgages or mortgage-
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backed securities held under an indenture. The issuer's obligation to make
interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are issued with a number of
classes or series which have different maturities and which may represent
interests in some or all of the interest or principal on the underlying
collateral or a combination thereof. CMOs of different classes are generally
retired in sequence as the underlying mortgage loans in the mortgage pool are
repaid. In the event of sufficient early prepayments on such mortgages, the
class or series of a CMO first to mature generally will be retired prior to its
maturity. Thus, the early retirement of a particular class or series of a CMO
held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security. Mortgage-related securities
will be purchased only if they meet the rating requirements set forth for each
Fund with respect to investments in debt securities of U.S. corporations or, if
unrated, which IMG deems to present attractive opportunities and are of
comparable quality.
The Limited Term Bond, Bond, Income and Balanced Funds may invest a portion of
their assets in stripped mortgage-backed securities ("SMBS") which are
derivative multiclass mortgage securities issued by agencies or
instrumentalities of the U.S. government, or by private originators, or
investors in mortgage loans, including savings and loan institutions, mortgage
banks, commercial banks and investment banks.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions from a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest while the other class will
receive the entire principal. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment in these securities. The market value of the class
consisting primarily or entirely of principal payments generally is unusually
volatile in response to changes in interest rates.
OTHER ASSET-BACKED SECURITIES. The Limited Term Bond, Bond, Income and Balanced
Funds may also invest in interests in pools of receivables, such as motor
vehicle installment purchase obligations (known as Certificates of Automobile
Receivables or CARSSM) and credit card receivables (known as Certificates of
Amortizing Revolving Debts or CARDSSM). Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities may also be debt
instruments that are also known as collateralized obligations and 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 securities are not issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain time
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities.
Non-mortgage backed securities will be purchased by a Fund only if they meet the
rating requirements set forth for each Fund with respect to investments in debt
securities of U.S. corporations.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which may
reduce the overall return to certificate holders. Nevertheless, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the underlying car loans or other receivables tend to dampen the
impact of any change in the prepayment level. Certificate holders may also
experience delays in payment on the certificates if the full amounts due on
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underlying sales contracts or receivables are not realized by the trust because
of unanticipated legal or administrative costs or enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with its investment
objective and policies, each Fund may invest in other asset-backed securities
that may be developed in the future.
Issuers of mortgage-backed and asset-backed securities often issue one or more
classes of which one (the "Residual") is in the nature of equity. The Funds will
not invest in any Residual.
SECURITIES OF OTHER INVESTMENT COMPANIES. All Funds may invest in securities
issued by other investment companies. Each Fund currently intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; (c) not more than 3% of the outstanding voting
stock of any one investment company will be owned by any of the Funds; and (d)
not more than 10% of the outstanding voting stock of any one investment company
will be owned in the aggregate by the Funds. As a shareholder of another
investment company, a Fund would bear, along with other shareholders, its pro
rata portion of that company's expenses, including advisory fees. Investment
companies in which a Fund may invest may also impose a sales or distribution
charge in connection with the purchase or redemption of their shares and other
types of commissions or charges. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations. Such charges will be payable by the Funds and, therefore, will
be borne directly by shareholders.
Each Fund, except the Government Assets, Liquid Assets and Municipal Assets
Funds, may invest in the Government Assets, Liquid Assets and Municipal Assets
Funds. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations. In order to avoid the imposition of additional fees as a result of
investing in shares of the Government Assets, Liquid Assets and Municipal Assets
Funds, IMG will waive any portion of their advisory and administrative fees that
are attributable to investments therein by another Fund. Investment companies in
which a Fund may invest may also impose a sales or distribution charge in
connection with the purchase or redemption of their shares and other types of
commissions or charges. Such charges will be payable by the Funds and,
therefore, will be borne directly by shareholders.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from member banks of the Federal Deposit Insurance Corporation and
registered broker-dealers which IMG deems creditworthy under guidelines approved
by the Company's Board of Directors, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. Securities subject to
repurchase agreements must be of the same type and quality although, for the
Government Assets, Liquid Assets and Municipal Assets Funds, not subject to the
same maturity requirements, as those in which the Fund may invest directly. The
seller under a repurchase agreement will be required to maintain continually the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund holding such obligation
would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price under the
agreement, or to the extent that the disposition of such securities
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by the Fund were delayed pending court action. Additionally, there is no
controlling legal precedent confirming that a Fund would be entitled, as against
a claim by such seller or its receiver or trustee in bankruptcy, to retain the
underlying securities, although the Board of Directors of the Company believes
that, under the regular procedures normally in effect for custody of a Fund's
securities subject to repurchase agreements and under federal laws, a court of
competent jurisdiction would rule in favor of the Company if presented with the
question. Securities subject to repurchase agreements will be held by that
Fund's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act. A Fund may not enter into repurchase
agreements if, as a result, more than 10 percent of the Fund's net asset value
at the time of the transaction would be invested in the aggregate in repurchase
agreements maturing in more than seven days and other securities which are not
readily marketable.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements in accordance with that Fund's
investment restrictions. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase the securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, it will place in
a segregated custodial account assets such as U.S. Government securities or
other liquid, high grade debt securities consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently continually monitor the account to ensure that
such equivalent value is maintained at all times. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act.
SECURITIES LENDING. Each of the Funds may seek to increase its income by lending
Fund securities. Such loans will usually be made only to member banks of the
Federal Reserve System and to member firms (and subsidiaries thereof) of the New
York Stock Exchange ("NYSE") and will be secured continuously by collateral in
cash, cash equivalents, or U.S. government securities maintained on a current
basis at an amount at least equal to the market value of the securities loaned.
Investment of the collateral underlying the Fund's securities lending activities
will be limited to short-term, liquid debt securities. The Fund has the right to
call a loan and obtain the securities loaned at any time on customary industry
settlement notice (which will usually not exceed three days). During the
existence of a loan, the Fund will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and will also
receive compensation based on investment of the collateral. The Fund will not,
however, have the right to vote any securities having voting rights during the
existence of the loan, but will call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving or withholding
of their consent on a material matter affecting the investment. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower fail financially. However, the
loans would be made only to firms deemed to be of good standing, and when the
consideration that could be earned currently from securities loans of this type
justifies the attendant risk. The value of the securities loaned will not exceed
one-third of the value of any Fund's total assets. Fees earned by the Municipal
Bond Fund from lending its securities will constitute taxable income to the Fund
which, when distributed to shareholders, will likewise generally be treated as
taxable income.
MUNICIPAL SECURITIES. Under normal market conditions, at least 80% of the net
assets of the Municipal Assets and Municipal Bond Funds will be invested in
Municipal Securities, the interest on which is exempt from the regular federal
income tax and not treated as a preference item for purposes of the federal
alternative minimum tax imposed on non-corporate taxpayers.
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Municipal Securities include debt obligations issued by governmental entities to
obtain Funds for various public purposes, such as the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Securities if the interest paid thereon
is exempt from regular federal individual income taxes and is not treated as a
preference item for purposes of the federal alternative minimum tax.
Other types of Municipal Securities which the Municipal Assets and Municipal
Bond Funds may purchase are short-term General Obligation Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes,
Tax-Exempt Commercial Paper, Project Notes, Construction Loan Notes and other
forms of short-term tax-exempt loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues. The Municipal Assets and Municipal Bond Funds
will not purchase municipal lease obligations.
Project Notes are issued by a state or local housing agency and are sold by the
Department of Housing and Urban Development. While the issuing agency has the
primary obligation with respect to its Project Notes, they are also secured by
the full faith and credit of the United States through agreements with the
issuing authority which provide that, if required, the federal government will
lend the issuer an amount equal to the principal of and interest on the Project
Notes.
The two principal classifications of Municipal Securities consist of "general
obligation" and "revenue" issues. The Municipal Assets and Municipal Bond Funds
may also acquire "moral obligation" issues, which are normally issued by special
purpose authorities. There are, of course, variations in the quality of
Municipal Securities, both within a particular classification and between
classifications, and the yields on Municipal Securities depend upon a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's and S&P represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and securities with the same
maturity, interest rate and rating may have different yields, while securities
of the same maturity and interest rate with different ratings may have the same
yield. Subsequent to purchase, an issue of Municipal Securities may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Municipal Assets and Municipal Bond Funds. IMG will consider
such an event in determining whether the Fund should continue to hold the
obligation.
An issuer's obligations for Municipal Securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the federal bankruptcy code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon the
enforcement of such obligations or upon the ability of municipalities to levy
taxes. Litigation or other conditions may materially adversely affect the power
or ability of an issuer to meet its obligations for the payment of interest on
and principal of its Municipal Securities.
LOW-RATED AND COMPARABLE UNRATED FIXED INCOME SECURITIES. The Limited Term Bond,
Bond, Income, Municipal Bond and Balanced Funds may invest in
Below-Investment-Grade Securities. Below-Investment-Grade Securities
(hereinafter referred to as "junk bonds" or "low-rated and comparable unrated
securities") include (i) bonds rated below the fourth highest rating category by
a nationally recognized statistical rating organization (an "NRSRO"); and (ii)
unrated debt securities of comparable quality.
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Low-rated and comparable unrated securities, while generally offering higher
yields than investment-grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. They are regarded as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The special risk considerations in connection with such
investments are discussed below.
Each of the Limited Term Bond, Bond, Income, Municipal Bond, and Balanced Funds
may invest up to 25% of its total assets in fixed-income securities that are
rated lower than investment grade. To the extent each Fund invests in these
lower rated securities, the achievement of its investment objective may be more
dependent on the Advisor's own credit analysis than in the case of a fund
investing in higher quality bonds. While the Advisor will refer to ratings
issued by established ratings agencies, it is not a policy of the Company to
rely exclusively on ratings issued by these agencies, but rather to supplement
such ratings with the Advisor's own independent and ongoing review of credit
quality.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. The low-rated and comparable
unrated securities market is relatively new, and its growth paralleled a long
economic expansion. As a result, it is not clear how this market may withstand a
prolonged recession or economic downturn. Such a prolonged economic downturn
could severely disrupt the market for and adversely affect the value of such
securities.
All interest-bearing securities typically experience appreciation when interest
rates decline and depreciation when interest rates rise. The market values of
low-rated and comparable unrated securities tend to reflect individual corporate
developments to a greater extent than do higher-rated securities, which react
primarily to fluctuations in the general level of interest rates. Low-rated and
comparable unrated securities also tend to be more sensitive to economic
conditions than are higher-rated securities. As a result, they generally involve
more credit risk than securities in the higher-rated categories. During an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of low-rated and comparable unrated securities may experience
financial stress and may not have sufficient revenues to meet their 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. The risk of loss due to default by an issuer of low-rated and
comparable unrated securities is significantly greater than that of issuers of
higher-rated securities because such securities are generally unsecured and are
often subordinated to other creditors. Further, if the issuer of a low-rated and
comparable unrated security defaulted, the Fund might incur additional expenses
to seek recovery. Periods of economic uncertainty and changes would also
generally result in increased volatility in the market prices of low-rated and
comparable unrated securities and thus in the Fund's net asset value.
As previously stated, the value of such a security will decrease in a rising
interest rate market and accordingly, so will the Fund's net asset value. If the
Fund experiences unexpected net redemptions in such a market, it may be forced
to liquidate a portion of its Fund securities without regard to their investment
merits. Due to the limited liquidity of high-yield securities (discussed below)
the Fund may be forced to liquidate these securities at a substantial discount.
Any such liquidation would reduce the Fund's asset base over which expenses
could be allocated and could result in a reduced rate of return for the Fund.
PAYMENT EXPECTATIONS. Low-rated and comparable unrated securities typically
contain redemption, call or prepayment provisions that permit the issuer of such
securities containing such provisions to redeem, at their discretion, the
securities. During periods of declining interest rates, issuers of high-yield
securities are likely to redeem or prepay the securities and refinance them with
debt securities with a lower interest rate. To the extent an issuer is able to
refinance the securities, or otherwise redeem them, the Fund may have to replace
the securities with a lower-yielding security, which would result in a lower
return for the Fund.
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CREDIT RATINGS. Credit ratings issued by credit-rating agencies evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of low-rated and comparable unrated
securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in low-rated and comparable unrated securities will be more
dependent on the credit analysis than would be the case with investments in
investment-grade debt securities. The Advisor employs its own credit research
and analysis, which includes a study of existing debt, capital structure,
ability to service debt and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history, and the current trend of earnings.
The Advisor continually monitors the investments owned by the Funds and
carefully evaluates whether to dispose of or to retain low-rated and comparable
unrated securities whose credit ratings or credit quality may have changed.
LIQUIDITY AND VALUATION. The Fund may have difficulty disposing of certain
low-rated and comparable unrated securities because there may be a thin trading
market for such securities. Because not all dealers maintain markets in
low-rated and comparable unrated securities, there is no established retail
secondary market for many of these securities. The Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market does exist, it is generally
not as liquid as the secondary market for higher-rated securities. As a result,
the Fund's asset value and the Fund's ability to dispose of particular
securities, when necessary to meet the Fund's liquidity needs or in response to
a specific economic event, may be impacted. The lack of a liquid secondary
market for certain securities may also make it more difficult for the Fund to
obtain accurate market quotations for purposes of valuing the Fund's securities.
Market quotations are generally available on many low-rated and comparable
unrated securities only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. During periods
of thin trading, the spread between bid and asked prices is likely to increase
significantly. In addition, adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may decrease the values and liquidity of
low-rated and comparable unrated securities, especially in a thinly traded
market.
NEW AND PROPOSED LEGISLATION. Legislation has been adopted and, from time to
time, proposals have been discussed regarding new legislation designed to limit
the use of certain low-rated and comparable unrated securities by certain
issuers. An example of legislation is a recent law that requires federally
insured savings and loan associations to divest their investment in these
securities over time. New legislation could further reduce the market because
such securities, generally, could negatively affect the financial condition of
the issuers of high-yield securities, and could adversely affect the market in
general. It is not currently possible to determine the impact of the recent
legislation on this market. However, it is anticipated that if additional
legislation is enacted or proposed, it could have a material effect on the value
of low-rated and comparable unrated securities and the existence of a secondary
trading market for the securities.
LIQUIDITY AND SERVICING AGREEMENTS. IMG's responsibilities as Advisor include
the solicitation and approval of commercial banks selected as "Participating
Banks" from which a Fund may purchase participation interests in short-term
loans subject to Liquidity and Servicing Agreements or which may issue
irrevocable letters of credit to back the demand repayment commitments of
borrowers. A careful review of the financial condition and loan loss record of a
prospective bank will be undertaken prior to the bank being approved to enter
into a Liquidity and Servicing Agreement and, once approved, a Participating
Bank's financial condition and loan loss record will be reviewed at least
annually thereafter.
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The principal criteria which the Advisor will consider in approving, rejecting
or terminating Liquidity and Servicing Agreements with Participating Banks will
include a bank's (a) ratio of capital to deposits; (b) ratio of loan charge offs
to average loans outstanding; (c) ratio of loan loss reserves to net loans
outstanding; and (d) ratio of capital to total assets. Ordinarily, the Advisor
will recommend that a Fund not enter into or continue a Liquidity and Servicing
Agreement with any bank whose ratios (as described above) are less favorable
than the average of all Iowa banks. The Advisor will also consider a bank's
classified loan experience, historical and current earnings and growth trends,
quality and liquidity of investments and stability of management and ownership.
Typically, the Advisor will utilize a variety of information sources; including,
annual audited financial statements, unaudited interim financial statements,
quarterly reports of condition and income filed with regulatory agencies and
periodic examination reports (if available) and reports of federally insured
banks concerning past-due-loans, renegotiated loans and other loan problems.
STUDENT LOAN TRUSTS. The Liquid Assets Fund is authorized to purchase Student
Loan Certificates from one or more Student Loan Trusts. The Fund will only
purchase Student Loan Certificates from Student Loan Trusts formed for the
purpose of purchasing federally insured student loans originated and sold by
banks subject to purchase, at the option of the Student Loan Trust, on no more
than five business days' written notice. Student Loan Trusts are funded by the
issuance and sale to the Fund of Student Loan Certificates which have an
original maturity of no more than 397 days and which may be redeemed by the Fund
upon not more than five business days' written notice to the issuing Student
Loan Trust. The Fund is under no obligation to purchase Student Loan
Certificates issued by any Student Loan Trust.
The Fund's election to purchase Student Loan Certificates will be based upon the
amount of funds available for investment, the investment yield borne by the
Student Loan Certificates compared with yields available on other short-term
liquid investments and upon the aggregate amount of Student Loan Certificates,
commercial and industrial loans and participation interests therein owned by the
Fund which may not exceed 80 percent of Fund assets. The yield to the Fund on
Student Loan Certificates will be commensurate with current net yields on
federally insured student loans. Presently, net of servicing and trust fees,
such loans yield approximately the 91-day U.S. Treasury Bill rate plus 0.65 to
0.75 percent. Such fees will be paid out of the Student Loan Trust assets and no
other fees will be paid directly or indirectly by the Fund.
The Higher Education Act (the "Act") sets forth provisions establishing a
program of (i) direct federal insurance to holders of student loans, and (ii)
reimbursement to state agencies or private non-profit corporations administering
student loan insurance programs of losses sustained in the operation of their
programs (the "Federal GSL Program"). Under the Federal GSL Program, the
Secretary of Education (the "Secretary") is authorized to enter into guarantee
and interest subsidy agreements with the Iowa College Aid Commission, and
similar organizations (collectively the "Agencies"). The Federal GSL Program
provides for reimbursements to the Agencies for default claims paid by them, the
payments of administrative cost allowances to the Agencies, advances for the
Agencies' reserve funds and interest subsidy payments and Special Allowance
Payments to the holders of qualifying student loans made pursuant to the Federal
GSL Program.
Pursuant to Section 428(c)(1)(A) of the Act, the Agencies have entered into
guarantee agreements with the Secretary under which the respective Agencies
operate a Guarantee Program, whereby the Secretary agrees to reimburse the
Agencies in an amount equal to 80 percent of the amount expended by them in the
discharge of their insurance obligations on the unpaid balance of principal and
accrued interest with respect to loans guaranteed by the Agencies. The Act also
authorizes the Secretary to enter into supplemental guarantee agreements whereby
such federal reimbursement will be increased to a maximum of 100 percent of the
amount expended by the agencies in the discharge of their insurance obligations.
The supplemental guarantee agreements are subject to annual renegotiation and
the Secretary is not authorized to renew them unless the Agencies' Guarantee
Programs comply with all the terms of
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the supplemental guarantee agreements and all the provisions of applicable
federal regulations.
The Secretary and the Agencies have entered into interest subsidy agreements
under Section 428 (b) of the Act whereby the Secretary agrees to pay interest
subsidy payments to the holders of qualifying student loans for the benefit of
students meeting certain requirements. To be eligible for federal reimbursement
programs, such loans must be made by an "eligible lender" under the Agencies'
Guarantee Program, which must meet requirements prescribed by the rules and
regulations promulgated under the Act. The Trustee will be an eligible lender
and will purchase only loans originated by eligible lenders.
The Act, as amended in 1976, provides for Special Allowance Payments by the
Secretary to holders of qualifying student loans such as the Trust. Special
Allowance Payments are computed on the basis of the average of the bond
equivalent rates of the 91-day U.S. Treasury Bills auctioned during the
preceding quarter, and are provided as an inducement to lenders or holders of
loans to compensate them for the difference between the interest rate carried by
the student loan and the current commercial interest rates.
The Student Loan Reform Act of 1993 made various changes to the Federal
Guaranteed Student Loan Program. Effective October 1, 1993, Agencies are only
required to guarantee student loans at 98 percent of the unpaid balance of
principal and accrued interest on loans made after October 1, 1993. In addition,
other changes were made relating to origination fees, borrower interest rates,
technical revisions on how consolidated loans are treated and a limitation on
the amount of guarantee fee that can be charged by Agencies. Commencing July 1,
1995, the lender yield for Guaranteed Student Loans disbursed after July 1,
1995, was reduced to the 90-day Treasury Bill rate plus 2.5 percent.
The Student Loan Trusts from which the Fund purchases Student Loan Certificates
have agreed that all student loans purchased by the Trust will be insured either
directly by the Secretary or under the Federal GSL Program and will qualify for
interest subsidy payments and Special Allowance Payments. Loans typically will
be in amounts of $25,000 or less, repayable over a term of 15 years or less. At
March 31, 1998, assets of the Fund included Student Loan Trust in the amount of
$36,500,000, which was equal to 34.80 percent of Fund net assets. These
Certificates have an original maturity of not more than 364 days and may be
redeemed by the Fund upon not more than five-business days' written notice to
the Iowa Student Loan Trust. Proceeds from the issuance of Student Loan
Certificates have been used by the Iowa Student Loan Trust to purchase federally
insured student loans initiated by Iowa banks which may be required to purchase
such loans from the Iowa Student Loan Trust on not more than five business days'
written notice. In the event a bank was unable to honor its purchase commitment
it would be necessary for the Iowa Student Loan Trust to seek other purchasers
of the loans. Because such loans are federally insured and bear a variable
interest rate the Fund believes that a ready market for them exists.
GUARANTEED LOAN TRUSTS. The Liquid Assets Fund may purchase FmHA Certificates
from one or more guaranteed loan trusts created for the purpose of acquiring
participation interests in the guaranteed portion of FmHA guaranteed loans
("FmHA Trusts"). Interest and principal payments of the FmHA Loans would accrue
to the benefit of the Fund net of certain FmHA Trust fees and other fees payable
to certain parties for servicing the FmHA Loans and arising out of the
participation of the guaranteed portion of the FmHA Loans. Each FmHA Certificate
will provide certain identifying information regarding the specific FmHA Loan
acquired including the effective rate and reset provision. Each FmHA Certificate
will also be redeemable upon not more than five business days' written notice by
the Fund to the Trustee for an amount equal to the unpaid balance of the
participated portion of the FmHA Loan and accrued interest due thereon. The
redemption feature of the FmHA Certificates is backed by unconditional purchase
commitments between the Trustee, and Participating Banks which require the banks
to purchase such loans at par less a processing fee upon no more than five
business days prior written notice. Such purchase commitments are unconditional
and are operative whether the FmHA Loans are
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in default or experiencing difficulties. The unconditional purchase commitments
by the Participating Banks are intended to provide liquidity for the FmHA Loans
held by the FmHA Trust and beneficially owned by the Fund. Insofar as the
unconditional commitment creates this liquidity, for purposes of Rule 2a-7 and
the diversification requirements thereunder, the unconditional commitments are
limited in amounts necessary to keep one Participating Bank from being obligated
to purchase more than 25 percent of the total assets held by the Fund (as of the
date of purchase of the FmHA Certificate), and 10 percent as to each additional
Participating Bank.
The sole purpose of the trust arrangement is to provide a convenient structure
for servicing the FmHA Loans and to eliminate the premium risk that could arise
if the Fund invested directly in the FmHA Loans and prepayment were to occur.
The Board of Directors believes that the arrangement presents minimal credit
risk and that the arrangement is a permissible investment. For purposes of Rule
2a-7, the Fund does not consider the FmHA Loans or the certificates evidencing
ownership as illiquid and considers the arrangement with the participating banks
as standby unconditional put commitments.
FmHA guaranteed loans are originated by financial institutions, mostly
commercial banks, as a direct loan to the borrower. The FmHA guaranteed loans
acquired by the Fund will all have variable rates of interest which will reset
no less frequently than semi-annually and upon the adjustment of the interest
rate the value of the securities will be approximately equal to par. The FmHA, a
division of the U.S. Department of Agriculture, is an independent agency of the
United States Government and has the authority to grant the United States
Government's full faith and credit guarantee on loans originated by commercial
lenders. Through the Rural Development Act of 1972, the FmHA guaranteed loan
program was enacted by Congress to help meet the financing needs of small
businesses, farms and community facilities in rural areas. Guarantees are issued
on loans obtained by those persons who meet FmHA criteria. Typically borrowers
eligible for FmHA loans face a degree of financial stress which prevents them
from qualifying for non-guaranteed credit based on the standards of commercial
lenders. The lender submits applications for loan guarantees to the local FmHA
county officer for approval. Local officials review the application to determine
whether the borrower, lender and proposed loan meet program requirements. Loan
terms are negotiated with the lender and the borrowers, but the terms must fall
within FmHA guidelines. The FmHA will guarantee up to 90 percent of the total
loan depending upon the loan's soundness.
Under the FmHA Loan program, the guaranteed portion of FmHA loans may be
participated, sold by the originating bank and traded in the secondary market.
The Fund will only invest in the guaranteed portions of FmHA Loans that are so
participated. While the most current government figures indicate the outstanding
balance on guaranteed loans to be over $4 billion, it is estimated that
approximately 20 percent of the total outstanding balance of guaranteed loans
have actually been participated in the secondary market.
The FmHA guaranty guarantees the repayment of principal and interest
unconditionally and accrues to the benefit of the person owning the participated
portion of the guaranteed FmHA loan. When the FmHA loans are sold the guaranty
is assigned to the purchaser and is unconditional and irrevocable. All FmHA
loans purchased by the Trust will be valued by the Fund at par.
The trustee will communicate to the Fund's Investment Adviser the status of loan
payments and delinquencies. In addition, Participating Banks, subject to the
unconditional commitments to purchase the participated FmHA Loans, will be
subject to on-going credit review by the Fund's Investment Adviser. To the
extent that any of the banks deteriorate in credit quality from the standard set
by regional banks with the highest credit ratings by NRSRO's the Investment
Adviser will take action to replace such banks with another bank with an
appropriate credit rating or if unrated, with a comparable credit quality based
on the Investment Adviser's analysis.
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TAX-EXEMPT DEBT OBLIGATIONS USED BY THE MUNICIPAL ASSETS FUND. The Municipal
Assets Fund invests in tax-exempt debt obligations issued by state and municipal
governmental units and public authorities within the United States and
participation interests therein. With few exceptions, such obligations will be
non-rated and of limited marketability. However, they will be backed by demand
repurchase commitments of the issuers thereof and irrevocable bank letters of
credit or guarantees (collectively referred to herein as "Liquidity
Agreements"). The Liquidity Agreements will permit the holder of the securities
to demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days notice either from the issuer or by drawing on an
irrevocable bank letter of credit or guarantee. The issuer of the security may
have a corresponding right to prepay the principal and accrued interest. In
addition, all obligations with maturities longer than one year from date of
purchase will, by their terms, bear rates of interest that are adjusted upward
or downward no less frequently than semiannually by means of a formula intended
to reflect market changes in interest rates.
The time period covered by Liquidity Agreements may be shorter than the final
maturity of the obligations covered thereby. At or before the expiration of such
Liquidity Agreements, the Fund will seek to obtain either extensions thereof or
replace them with new agreements and if unable to do so the Fund will exercise
its rights under existing Liquidity Agreements to require that the obligations
be purchased. Thus, at no time will the Fund's investments include obligations
with maturities longer than one year unless the obligations bear interest rates
subject to periodic adjustment at least semiannually and are subject to sale on
seven calendar days notice under existing Liquidity Agreements.
The only banks (the "Participating Banks") which will be permitted to sell
participations in fixed and variable rate tax-exempt debt obligations of United
States governmental units to the Fund (or to provide irrevocable letters of
credit or guarantees to back the demand repurchase commitments of the issuers of
such obligations) will be United States banks which have entered into
irrevocable written agreements with respect thereto and have agreed to furnish
to the Fund whatever financial information may be requested for purposes of
evaluating the Participating Banks financial condition and capacity to fulfill
its obligations to the Fund and to perform such servicing duties as may be
mutually agreed to by the parties.
The Fund's investments may include participation interests, purchased from
Participating Banks, in fixed and variable rate tax-exempt debt obligations
(including industrial development bonds hereinafter described) owned by the
banks. A participation interest gives the Fund an undivided interest in the
tax-exempt obligation in the proportion that the Fund's participation interest
bears to the total principal amount of the obligation and carries a demand
repurchase feature. An irrevocable letter of credit or guarantee of the
Participating Bank that issued the participation backs each participation. The
Fund has the right to liquidate the participation, in whole or in part, by
drawing on the letter of credit or guarantee of the Participating Bank which
issued the participation. The Fund has the right to liquidate the participation,
in whole or in part, by drawing on the letter of credit on demand, after seven
calendar days' notice, for all or any part of the principal amount of the Fund's
participation, plus accrued interest.
The Fund intends to exercise its rights under Liquidity Agreements only: (1)
upon default in the terms of the tax-exempt debt obligations covered thereby;
(2) to provide the Fund with needed liquidity to cover redemptions of Fund
shares; or (3) to insure that the value of the Fund's investment portfolio does
not vary materially from the amortized cost thereof. Participating Banks have no
contractual obligation to offer participations to the Fund, and the Fund is not
obligated to purchase or resell any participations offered or sold by
Participating Banks. The Liquidity Agreements govern the obligations of the
parties as to securities or participations actually purchased by the Fund.
The financial condition and investment and loan loss record of all banks seeking
to sell participations in fixed and variable rate tax-exempt debt obligations to
the Fund (or to provide letters of credit or guarantees to back the demand
repurchase
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commitments of the issuers of such obligations) will be carefully evaluated by
the Advisor, based upon guidelines established by the Board of Directors, prior
to the execution of a Liquidity Agreement by a Participating Bank and
periodically thereafter. Purchased obligations will bear interest at or above
current market rates and the rates borne by obligations with maturities longer
than one year will be adjustable at least semi-annually to reflect changes in
market rates subsequent to issuance of the securities. It is anticipated that
the tax-exempt debt obligations purchased or participated in by the Fund will be
those traditionally acquired by United States banks. These include both general
obligation and revenue bonds issued for a variety of public purposes such as the
construction of a wide range of facilities including schools, streets, water and
sewer works, highways, bridges, and housing. Also included are bonds issued to
refund outstanding obligations, to obtain funds for general operating purposes
and to lend to other public institutions and facilities. Certain types of
industrial development bonds issued by public bodies to finance the construction
of industrial and commercial facilities and equipment are also purchased.
Revenue generating facilities such as parking garages, airports, sports and
convention complexes and water supply, gas, electricity, and sewage treatment
and disposal systems are financed through issuance of tax-exempt debt
obligations as well.
Tax-exempt debt obligations are normally categorized as "general obligation" or
"revenue" issues. General obligations are secured by a pledge of the full taxing
power of the issuer while revenue obligations are payable only from revenues
generated by a facility or facilities, a specified source of tax or other
revenues or, in the case of industrial development bonds, from lease rental or
loan payments made by a commercial or industrial user of the facilities. Revenue
obligations do not generally carry the pledge of the credit of the issuer.
Short-term tax-exempt debt obligations usually mature in less than two years,
are typically general obligations of the issuer and most often issued in
anticipation of receipts to be realized from tax collections or the sale of
long-term bonds. Project Notes are issued by local agencies under a program
administered by the United States Department of Housing and Urban Development
and are secured by the full faith and credit of the United States.
From time to time the Fund may invest 25 percent or more of its assets in
tax-exempt debt obligations, or participations therein, sufficiently similar in
character that an economic, business or political development or change
affecting one such security would also affect the other securities. Examples
might be securities whose principal and interest payments are dependent upon
revenues derived from similar projects or whose issuers are located in the same
state. In addition, investments in tax-exempt debt obligations of issuers may
from time to time become concentrated within a single state, and the Fund may
also invest 25 percent or more of its assets in industrial development bonds or
participations therein.
For entering into a Liquidity Agreement, a Participating Bank will retain a
service and letter of credit fee in an amount equal to the excess of the
interest paid on the tax-exempt obligations above the negotiated yield at which
the instruments were purchased by the Fund. Such fees may be adjusted if
adjustments are made in the interest rate paid on the tax-exempt obligations.
Each Participating Bank executing a Liquidity Agreement must be approved by the
Board of Directors of the Fund prior to, or at the next quarterly Board meeting
following, such executions. See "Liquidity and Servicing Agreements" above for a
discussion of the criteria to be used in selecting Participating Banks. The
Board of Directors will review all Participating Banks and Liquidity Agreements
quarterly in an effort to assure continued liquidity and high quality in the
Fund's portfolio.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Funds. Under these
restrictions a Fund may not:
1. Underwrite securities issued by other persons, except to the extent that a
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Fund may be deemed to be an underwriter under certain securities laws in
the disposition of "restricted securities";
2. Purchase or sell commodities or commodities contracts, except to the extent
disclosed in the current Prospectus of the Funds;
3. Purchase or sell real estate (although investments by the Equity Fund and
the Income Fund in marketable securities of companies engaged in such
activities are not prohibited by this restriction);
The Bond Fund has also adopted the following fundamental investment
restrictions. The Bond Fund may not:
1. Borrow money except for temporary or emergency purposes (but not for the
purpose of purchasing investments) and then, only in an amount not to
exceed 25 percent of the value of the Fund's net assets at the time the
borrowing is incurred; provided, however, that the Fund may enter into
transactions in options, futures and options on futures. The Fund will not
purchase securities when borrowings exceed 5 percent of its total assets.
If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. To this extent, purchasing
securities when borrowings are outstanding may involve an element of
leverage.
2. Make loans, except that the Fund may (i) purchase and hold debt obligations
in accordance with investment objectives and policies, (ii) enter into
repurchase agreements, and (iii) lend Fund securities against collateral
(consisting of cash or securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities) equal at all times to not
less than 100 percent of the value of the securities loaned provided no
such loan may be made if as a result the aggregate of such loans of the
Fund's securities exceeds 30 percent of the value of the Fund's total
assets.
3. Issue senior securities, bonds or debentures.
4. Invest in the securities of a company for the purpose of exercising control
or management.
5. Sell securities short (except where the Fund holds or has the right to
obtain at no added cost a long position in the securities sold that equals
or exceeds the securities sold short) or purchase any securities on margin,
except that it may obtain such short-term credits as are necessary for the
clearance of transactions. The deposit or payment of margin in connection
with transactions in options and financial futures contracts is not
considered the purchase of securities on margin.
6. Concentrate investments in any industry. However, the Fund may invest up to
25 percent of the value of its total assets in any one industry.
The Liquid Assets Fund has also adopted the following fundamental
investment restrictions. The Liquid Assets Fund may not:
1. Invest more than 80 percent of its total assets in loans and/or loan
participations purchased from Participating Banks, Student Loan
Certificates and/or FmHA Certificates;
2. Pursuant to Rule 22-7 invest more than 25 percent of its total assets in
loan participations purchased from, or loans backed by letters of credit
issued by, one Participating Bank and 10 percent for each Participating
Bank thereafter (determined as of the date of purchase);
3. Invest with a view to exercising control or influencing management;
4. Invest more than ten percent of the value of its total assets in securities
of
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other investment companies, except in connection with a merger,
acquisition, consolidation or reorganization, subject to Section 12(d)(1)
of the Investment Company Act of 1940;
5. Purchase any securities on margin, except for the clearing of occasional
purchases or sales of portfolio securities;
6. Make short sales of securities or maintain a short position or write
purchase or sell puts (excluding repayment and guarantee arrangements on
loan participations purchased from Participating Banks), calls, straddles,
spreads or combinations thereof;
7. Make loans to other persons, provided the Fund may invest up to 80 percent
of its total assets in loans and/or loan participations purchased from
Participating Banks, Student Loan Certificates and/or FmHA Certificates, as
described in (1) above, and may make the investments, and enter into
repurchase agreements, as described under "Investment Objectives, Policies
and Restrictions";
8. Borrow money, except to meet extraordinary or emergency needs for funds,
and then only from banks in amounts not exceeding ten percent of its total
assets, nor purchase securities at any time borrowings exceed five percent
of the Fund's total assets;
9. Mortgage, pledge, hypothecate, or in any manner transfer, as security for
indebtedness, any securities owned by the Fund except as may be necessary
in connection with borrowings outlined in (8) above and then securities
mortgaged, hypothecated or pledge may not exceed five percent of the Funds'
total assets taken at market value;
10. Invest in securities with legal or contractual restrictions on resale
(except for repurchase agreements, loans, loan participations purchased
from Participating Banks and Student Loan and FmHA Certificates) or for
which no ready market exists;
11. Purchase loan participations other than from banks which have entered into
a Liquidity and Servicing Agreement and which have a record, together with
predecessors, of at least five years of continuous operation;
12. Enter into repurchase agreements if, as a result thereof, more than five
percent of the Fund's total assets (taken at market value at the time of
such investment) would be subject to repurchase agreements maturing in more
than seven calendar days; and
13. Purchase loan participations from any Participating Bank if five percent or
more of the securities of such Bank are owned by the Advisor or by
directors and officers of the Fund or the Advisor, or if any director or
officer of the Fund or the Advisor owns more than 1/2 percent of the voting
securities of such Participating Bank.
The Municipal Assets Fund has also adopted the following fundamental
investment restrictions. The Municipal Assets Fund may not:
1. Invest more than 80 percent of its total assets in tax-exempt fixed and
variable rate debt obligations (or participation interests therein) issued
by state and local governmental units within the United States which are
backed by Liquidity Agreements;
2. Pursuant to Rule 2a-7 invest more than 25 percent of its total assets in
tax-exempt obligations or participation interests therein subject to
Liquidity Agreements issued by one Participating Bank and 10 percent for
each Participating Bank thereafter;
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3. Invest with a view to exercising control or influencing management;
4. Invest more than ten percent of the value of its total assets in securities
of other investment companies, except in connection with a merger,
acquisition, consolidation or reorganization, subject to Section 12(d)(1)
of the Investment Company Act of 1940;
5. Purchase any securities on margin, except for the clearing of occasional
purchases or sales of portfolio securities;
6. Make short sales of securities or maintain a short position or write,
purchase, or sell puts (excluding Liquidity Agreements covering certain
tax-exempt obligations purchased by the Fund), calls, straddles, spreads or
combinations thereof;
7. Make loans to other persons, provided the Fund may make investments and
enter into repurchase agreements;
8. Borrow money, except to meet extraordinary or emergency needs for funds,
and then only from banks in amounts not exceeding ten percent of its total
assets, nor purchase securities at any time borrowings exceed five percent
of its total assets;
9. Mortgage, pledge, hypothecate, or in any manner transfer, as security for
indebtedness, any securities owned by the Fund except as may be necessary
in connection with borrowings outlined in (8) above and then securities
mortgaged, hypothecated or pledged may not exceed five percent of the
Fund's total assets taken at market value;
10. Invest in securities with legal or contractual restrictions on resale
(except for tax-exempt debt obligations subject to Liquidity Agreements) or
for which no ready market exists;
11. Enter into a Liquidity Agreement with any bank unless such bank is a United
States bank which has a record, together with its predecessors, of at least
five years of continuous operation;
12. Enter into repurchase agreements if, as a result thereof, more than five
percent of the Fund's total assets (taken at market value at the time of
such investment) would be subject to repurchase agreements maturing in more
than seven calendar days; and
13. Enter into Liquidity Agreements with any Participating Bank if five percent
or more of the securities of such Bank are owned by the Advisor or by
directors and officers of the Fund or the Advisor, or if any director or
officer of the Fund or the Advisor owns more than 1/2 percent of the voting
securities of such Participating Bank.
The following additional investment restrictions are not fundamental and
may be changed with respect to a particular Fund without the vote of a
majority of the outstanding shares of that Fund. A Fund may not:
1. Enter into repurchase agreements with maturities in excess of seven days if
such investments, together with other instruments in that Fund that are not
readily marketable or are otherwise illiquid, exceed 10% of that Fund's net
assets.
2. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities;
3. Engage in any short sales;
4. Purchase participation or direct interests in oil, gas or other mineral
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exploration or development programs (although investments by the Equity
Fund and the Income Fund in marketable securities of companies engaged in
such activities are not prohibited in this restriction);
5. Purchase securities of other investment companies, except (a) in connection
with a merger, consolidation, acquisition or reorganization, and (b) a Fund
may invest in other investment companies, including other Funds for which
IMG acts as adviser, as specified in the Prospectus subject to such
restrictions as may be imposed by the 1940 Act or any state laws.
6. Invest more than 5% of total assets in puts, calls, straddles, spreads or
any combination thereof.
7. With respect to the Limited Term Bond, Bond, Income, Balanced, Equity and
Aggressive Growth Funds, invest more than 5% of total assets in securities
of issuers which together with any predecessors have a record of less than
three years continuous operation.
If any percentage restriction described above is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from
a change in asset value will not constitute a violation of such
restriction.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Funds is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation excludes
all securities whose remaining maturities at the time of acquisition were one
year or less.
Portfolio turnover for any of the Funds may vary greatly from year to year as
well as within a particular year. High turnover rates will generally result in
higher transaction costs to a Fund. Portfolio turnover will not be a limiting
factor in making investment decisions.
Because the Government Assets, Liquid Assets and Municipal Assets Funds intend
to invest entirely in securities with maturities of less than 397 days and
because the Commission requires such securities to be excluded from the
calculation of the portfolio turnover rate, the portfolio turnover with respect
to each of the Government Assets, Liquid Assets and Municipal Assets Funds is
expected to be zero percent for regulatory purposes.
NET ASSET VALUE
The net asset value of each Fund is determined and the shares of each Fund are
priced as of the Valuation Times applicable to such Fund on each Business Day of
the Company. A "Business Day" constitutes any day on which the New York Stock
Exchange (the "NYSE") is open for trading or the Federal Reserve Bank of Chicago
is open, and any other day except days on which there are not sufficient changes
in the value of the Fund's portfolio securities that the Fund's net asset value
might be materially affected and days during which no shares are tendered for
redemption and no orders to purchase shares are received. Currently, either the
NYSE or Federal Reserve Bank of Chicago are closed on New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
VALUATION OF THE GOVERNMENT ASSETS, LIQUID ASSETS AND MUNICIPAL ASSETS FUNDS
The Government Assets, Liquid Assets and Municipal Assets Funds have elected to
use the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940
Act. This involves valuing an instrument at its cost initially and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the
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impact of fluctuating interest rates on the market value of the instrument. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price the Government Assets, Liquid Assets and
Municipal Assets Funds would receive if they sold the instrument. The value of
securities in the Government Assets, Liquid Assets and Municipal Assets Funds
can be expected to vary inversely with changes in prevailing interest rates.
Pursuant to Rule 2a-7, the Government Assets, Liquid Assets and Municipal Assets
Funds will maintain a dollar-weighted average portfolio maturity appropriate to
the Fund's objective of maintaining a stable net asset value per share, provided
that the Fund will not purchase securities with a remaining maturity of more
than 397 days (thirteen months) (securities subject to repurchase agreements may
bear longer maturities) nor maintain a dollar-weighted average portfolio
maturity which exceeds 90 days. The Company's Board of Directors has also
undertaken to establish procedures reasonably designed, taking into account
current market conditions and the investment objective of the Fund, to stabilize
the net asset value per share of the Fund for purposes of sales and redemptions
at $1.00. These procedures include review by the Directors, at such intervals as
they deem appropriate, to determine the extent, if any, to which the net asset
value per Share of the Fund calculated by using available market quotations
deviates from $1.00 per Share. In the event such deviation exceeds one-half of
one percent, Rule 2a-7 requires that the Board of Directors promptly consider
what action, if any, should be initiated. If the Directors believe that the
extent of any deviation from the Fund's $1.00 amortized cost price per Share may
result in material dilution or other unfair results to new or existing
investors, they will take such steps as they consider appropriate to eliminate
or reduce, to the extent reasonably practicable, any such dilution or unfair
results. These steps may include selling portfolio instruments prior to
maturity, shortening the average portfolio maturity, withholding or reducing
dividends, reducing the number of the Government Assets Fund's outstanding
shares without monetary consideration, or utilizing a net asset value per share
determined by using available market quotations.
VALUATION OF THE VARIABLE NAV FUNDS
Portfolio securities for which market quotations are readily available are
valued based upon their current available bid prices in the principal market
(closing sales prices if the principal market is an exchange) in which such
securities are normally traded. Unlisted securities for which market quotations
are readily available will be valued at the current quoted bid prices. Other
securities and assets for which quotations are not readily available, including
restricted securities and securities purchased in private transactions, are
valued at their fair value in IMG's best judgment under the supervision of the
Company's Board of Directors.
Among the factors that will be considered, if they apply, in valuing portfolio
securities held by the Variable NAV Funds are the existence of restrictions upon
the sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
The Company may use a pricing service to value certain portfolio securities
where the prices provided are believed to reflect the fair market value of such
securities. A pricing service would normally consider such factors as yield,
risk, quality, maturity, type of issue, trading characteristics, special
circumstances and other factors it deems relevant in determining valuations of
normal institutional trading units of debt securities and would not rely
exclusively on quoted prices. The methods used by the pricing service and the
valuations so established will be
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reviewed by the Company under the general supervision of the Company's Board of
Directors. The Adviser may from time to time use one or more of several pricing
services available.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
INFORMATION REGARDING PURCHASES
Shares in each of the Company's Funds are sold on a continuous basis by BISYS
Fund Services Limited Partnership, (the "Distributor") which has agreed to use
appropriate efforts to solicit all purchase orders. In addition to purchasing
shares directly from the Distributor, shares may be purchased through procedures
established by the Distributor in compliance with broker/dealers, banks,
investment advisory firms and other financial institutions ("Participating
Organizations") which may include affiliates of AMCORE Financial, Inc., the
owner of IMG. Customers purchasing shares of the Funds may include officers,
directors, or employees of AMCORE or its affiliates.
Purchases of shares in a Fund will be effected only on a Business Day (as
defined in "NET ASSET VALUE"). The public offering price of the Variable NAV
Funds will be the net asset value per share (see "NET ASSET VALUE") as
determined on the Business Day the order is received by the Distributor, but
only if the Distributor receives the order by the Valuation Time. Otherwise, the
price will be determined as of the Valuation Time on the next Business Day. In
the case of an order for the purchase of shares placed through a Participating
Organization, it is the responsibility of the Participating Organization to
transmit the order to the Distributor promptly.
Upon receipt by the Distributor of an order to purchase shares, shares of the
Government Assets, Liquid Assets, and Municipal Assets Funds are purchased at
the next determined net asset value per share (see "NET ASSET VALUE"). An order
to purchase shares of any of the Government Assets, Liquid Assets, or Municipal
Assets Fund will be deemed to have been received by the Distributor only when
federal funds with respect thereto are available to the Funds' custodian for
investment. Federal funds are monies credited to a bank's account with a Federal
Reserve Bank. Payment for an order to purchase shares of the Government Assets,
Liquid Assets, or Municipal Assets Fund which is transmitted by federal funds
wire will be available the same day for investment by the Funds' custodian, if
received prior to 3:00 p.m. Central Time that day. Payments transmitted by other
means (such as by check drawn on a member of the Federal Reserve System) will
normally be converted into federal funds within two banking days after receipt.
The Government Assets, Liquid Assets, and Municipal Assets Funds each strongly
recommend that investors of substantial amounts use federal funds to purchase
shares.
An order received prior to a Valuation Time on any Business Day for the
Government Assets, Liquid Assets, or Municipal Assets Fund will be executed at
the net asset value determined as of the next Valuation Time on the date of
receipt. An order received after the Valuation Time on any Business Day will be
executed at the net asset value determined as of the next Valuation Time on the
next Business Day. Shares purchased before 11:00 a.m., Central Time, begin
earning dividends on the same Business Day. Shares purchased after 11:00 a.m.,
Central Time, begin earning dividends on the next Business Day. All Shares of
the Government Assets, Liquid Assets, and Municipal Assets Funds continue to
earn dividends through the day before their redemption.
Every shareholder of record will receive a confirmation of each transaction in
his or her account, which will also show the total number of shares of a Fund
owned by the shareholder. Sending confirmations for purchases and redemptions of
shares held by a Participating Organization on behalf of its Customer will be
the responsibility of the Participating Organization. Shareholders may rely on
these statements in lieu of certificates. Certificates representing shares of
the Funds will not be issued.
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Shares of a Fund sold to the Participating Organizations acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of customers will
normally be held of record by the Participating Organizations. With respect to
shares sold, it is the responsibility of the holder of record to transmit
purchase or redemption orders to the Distributor and to deliver funds for the
purchase thereof by the Fund's custodian within the settlement requirements
defined in the Securities Exchange Act of 1934. If payment is not received
within the prescribed time periods or a check timely received does not clear,
the purchase will be canceled and the investor could be liable for any losses or
fees incurred. Any questions regarding current settlement requirements or
electronic payment instructions should be directed to the Funds at (800)
438-6375.
Participating Organizations provide varying arrangements for their clients to
purchase and redeem Fund shares. Some may establish higher minimum investment
requirements than set forth above. They may arrange with their clients for other
investment or administrative services. Such Participating Organizations may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the client's yield or return. Participating
Organizations may also hold Fund Shares positions in nominee or street name as
agent for and on behalf of their customers. In such instances, the Fund's
transfer agent will have no information with respect to or control over accounts
of specific shareholders. Such shareholders may obtain access to their accounts
and information about their accounts only from their Participating
Organizations. In the alternative, a Participating Organization may elect to
establish its customers' accounts of record with the transfer agent for the
Funds. Participating Organizations may aggregate their customers' purchases to
satisfy the required minimums. Some of the Participating Organizations may
receive compensation from the Fund's Shareholder Service Agent for recordkeeping
and other expenses related to these nominee accounts. In addition, certain
privileges with respect to the purchase and redemption of Shares or the
reinvestment of dividends may not be available through such Participating
Organizations. Some Participating Organizations may participate in a program
allowing them access to their clients' accounts for servicing including, without
limitation, transfers of registration and dividend payee changes; and may
perform functions such as generation of confirmation statements and disbursement
of cash dividends. The Prospectus should be read in connection with such
Participating Organizations' material regarding their fees and services.
Shareholders should also consider that certain Participating Organizations might
offer services that may not be available directly from the Fund.
Depending upon the terms of the particular Customer account, a Participating
Organization may charge a Customer account fees for services provided in
connection with investments in a Fund. Information concerning these services and
any charges will be provided by the Participating Organization. The Prospectus
should be read in conjunction with any such information so received from a
Participating Organization.
The Distributor, at its expense, with voluntary assistance from IMG in its sole
discretion, may also provide other compensation to broker/dealers that are
Participating Organizations ("Dealers") in connection with sales of shares of a
Fund. Compensation may include financial assistance to Dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more of the Funds, and other
Dealer-sponsored special events. In some instances, this compensation may be
made available only to certain Dealers whose representatives have sold or are
expected to sell a significant amount of shares. Compensation will also include
payment for travel expenses, including lodging, incurred in connection with
trips taken by invited registered representatives and members of their families
to locations within or outside of the United States for meetings or seminars of
a business nature. Compensation will also include the following types of
non-cash compensation offered through sales contests: (1) vacation trips,
including the provision of travel arrangements and lodging at luxury resorts at
exotic locations; (2) tickets for entertainment events (such as concerts,
cruises and sporting events) and (3) merchandise (such as clothing, trophies,
clocks and pens). Dealers may not use
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<PAGE>
sales of shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Funds or their shareholders.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
An IRA enables individuals, even if they participate in an employer-sponsored
retirement plan, to establish their own retirement program. IRA contributions
may be tax-deductible and earnings are tax-deferred. Under the Tax Reform Act of
1986, the tax deductibility of IRA contributions is restricted or eliminated for
individuals who participate in certain employer pension plans and whose annual
income exceeds certain limits. Existing IRAs and future contributions up to the
IRA maximums, whether deductible or not, still earn income on a tax-deferred
basis. All IRA distribution requests must be made in writing to the Distributor.
Any additional deposits to an IRA must distinguish the type and year of the
contribution.
For more information on an IRA call the Funds at (800) 438-6375. Investment in
shares of the Municipal Bond Fund or Municipal Assets Fund would not be
appropriate for any IRA. Shareholders are advised to consult a tax Advisor on
IRA contribution and withdrawal requirements and restrictions.
AUTO INVEST PLAN
The Auto Invest Plan enables Shareholders of the Funds to make regular monthly
or quarterly purchases of shares through automatic deductions from their bank
accounts (which must be with a domestic member of the Automatic Clearing House).
With Shareholder authorization, the Transfer Agent will deduct the amount
specified from the Shareholder's bank account, which will automatically be
invested in Shares at the public offering price on the dates of the deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $250; the minimum amount for subsequent investments in a Fund is
$25. Investments may be made on the 5th or 20th of each month, on the 5th and
20th of each month, or on the 20th of each quarter (Mar., June, Sept., Dec.). To
participate in the Auto Invest Plan, Shareholders should complete the
appropriate section of the account application, which can be acquired by calling
(800) 438-6375. For a Shareholder to change the Auto Invest instructions, the
request must be made in writing to the Distributor.
The Funds offer an exchange program whereby shareholders are entitled to
exchange their shares for shares of the other Funds. Such exchanges will be
executed on the basis of the relative net asset values of the shares exchanged.
The shares exchanged must have a current value that equals or exceeds the
minimum investment that is required (either the minimum amount required for
initial or subsequent investments as the case may be) for the Fund whose shares
are being acquired. Share exchanges will only be permitted where the Shares to
be acquired may legally be sold in the investor's state of residence. A
shareholder may make an exchange request by calling the Funds at (800) 438-6375
or by providing written instructions to the Funds. An investor should consult
the Funds for further information regarding exchanges. During periods of
significant economic or market change, telephone exchanges may be difficult to
complete. If a shareholder is unable to contact the Funds by telephone, a
Shareholder may also mail the exchange request to the Funds at the address
listed in the Prospectus. If the Distributor receives an exchange request in
good order by the Valuation Time, on any Business Day, the exchange usually will
occur on that day. Any shareholder who wishes to make an exchange should obtain
and review the current prospectus of the Fund in which he or she wishes to
invest before making the exchange.
MATTERS AFFECTING REDEMPTION
To the greatest extent possible, the Company will attempt to honor requests from
shareholders for (a) same day payments upon redemption of Government Assets,
Liquid
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Assets, or Municipal Assets Fund shares if the request for redemption is
received by the Distributor before 11:00 a.m. Central Time on a Business Day or,
if the request for redemption is received after 11:00 a.m. Central Time, to
honor requests for payment on the next Business Day, or (b) next day payments
upon redemption of the Variable NAV Funds if received by the Distributor before
the Valuation Time on a Business Day or if the request for redemption is
received after the Valuation Time, to honor requests for payment within two
Business Days, unless it would be disadvantageous to the Fund or the
shareholders of the Fund to sell or liquidate portfolio securities in an amount
sufficient to satisfy requests for payments in that manner.
All or part of a Customer's shares may be required to be redeemed in accordance
with instructions and limitations pertaining to his or her account held by a
Bank. For example, if a Customer has agreed to maintain a minimum balance in his
or her account, and the balance in that account falls below that minimum, the
Customer may be obliged to redeem, or the Bank may redeem for and on behalf of
the Customer, all or part of the Customer's Shares to the extent necessary to
maintain the required minimum balance. There may be no notice period affording
Shareholders an opportunity to increase the account balance in order to avoid an
involuntary redemption under these circumstances.
The Transfer Agent may require a signature guarantee by an eligible guarantor
institution. For purposes of this policy, the term "eligible guarantor
institution" shall include banks, brokers, dealers, credit unions, securities
exchanges and associations, clearing agencies and savings associations as those
terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. The
Transfer Agent reserves the right to reject any signature guarantee if (1) it
has reason to believe that the signature is not genuine, (2) it has reason to
believe that the transaction would otherwise be improper, or (3) the guarantor
institution is a broker or dealer that is neither a member of a clearing
corporation nor maintains net capital of at least $100,000. The signature
guarantee requirement will be waived if all of the following conditions apply:
(1) the redemption check is payable to the shareholder(s) of record and (2) the
redemption check is mailed to the shareholder(s) at the address of record or the
proceeds are either mailed or wired to a commercial bank account previously
designated on the Account Application. There is no charge for having redemption
requests mailed to a designated bank account.
For a wire redemption, the then-current wire redemption charge may be deducted
from the proceeds of a wire redemption. This charge, if applied, will vary
depending on the receiving institution for each wire redemption. It is not
necessary for Shareholders to confirm telephone redemption requests in writing.
If the Company receives a redemption order but a shareholder has not clearly
indicated the amount of money or number of shares involved, the Company cannot
execute the order. In such cases, the Company will request the missing
information and process the order on the day such information is received.
The Company may suspend the right of redemption or postpone the date of payment
for shares during any period when (a) trading on the New York Stock Exchange
(the "Exchange") is restricted by applicable rules and regulations of the
Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension for
the protection of security holders of the Company, or (d) the Commission has
determined that an emergency exists as a result of which (i) disposal by the
Company of securities owned by it is not reasonably practical, or (ii) it is not
reasonably practical for the Company to determine the fair value of its net
assets.
The Company may redeem shares of each of the Funds involuntarily if redemption
appears appropriate in light of the Company's responsibilities under the 1940
Act. See "NET ASSET VALUE" in this SAI.
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MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
Overall responsibility for management of the Company rests with its Board of
Directors, which is elected by the shareholders of the Company. The Directors
elect the officers of the Company to supervise actively its day-to-day
operations.
Directors and Officers, together with information as to their principal business
occupations during the last five years, and other information are shown below.
Each Director who is deemed an "interested person", as defined in the Investment
Company Act, is indicated by an asterisk.
Patricia M. Bonavia, age 49, Vice President
President, AMCORE Investment Group, N.A.
Karen Branding, age 39, Director
Chairman, President & CEO, Busch Creative Services Corporation, a marketing
and creative services subsidiary of Anheuser-Busch.
Jay Evans, age 56, Vice President
President and Chief Investment Officer, Investors Management Group.
Annalu Farber, age 50, Director
Sole Proprietor, Tyler Associates, a strategic planning, reengineering and
organizational change consulting firm, from 1996 to present; Executive V.P.
& Sr. Trust Executive, Key Trust Company of the Northwest, from 1993 to
1996.
Barbara P. Hazlehurst, age 52, Director
President, William R. Powers Advertising, a Des Plaines, IL based
advertising firm.
William J. Howard, age 53, Director
Attorney at Law, William J. Howard Law Firm, from 1998 to present,
Attorney, Brassfield, Cowen & Howard from 1973 to 1998.
Debra Johnson, age 38, Director
Vice President and CFO, Business Publications Corporation/Iowa Title
Company, a publishing and abstracting service company.
Fred Lorber, age 75, Director
Retired Consultant at B. F. & Q., a textile manufacturing and distribution
company, from 1996 to present; President, B. F. & Q. and predecessors, from
1984 to 1996.
Mark A. McClurg, age 46, Vice President
Vice President and Senior Managing Director, Investors Management Group.
David W. Miles, age 42, Director and President
Treasurer and Senior Managing Director, Investors Management Group.
Amy M. Mitchell, age 30, Treasurer
Director of Operations, Investors Management Group.
Edward J. Stanek, age 52, Director
Commissioner and CEO, Iowa Lottery, a government operated lottery.
John G. Taft, age 44, Director
32
<PAGE>
President, CEO and Director, Dougherty Summit Securities LLC, from 1997 to
present; President & CEO, Voyageur Asset Management LLC, from 1991 to
present.
Steven Zumbach, age 49, Chairman and Director
Attorney at Belin, Lamson, Zumbach, Flynn Law Firm.
The address for Mr. Miles, Mr. McClurg, Mr. Evans, and Ms. Mitchell is
2203 Grand Avenue, Des Moines, Iowa 50312-5338.
As of the date hereof, Officers and Directors beneficially owned no more than 1
percent of the shares of common stock of the Fund.
Directors and Officers of the Fund who are officers, directors, employees, or
stockholders of the Advisor do not receive any remuneration from the Fund for
serving as Directors or Officers. Those Directors of the Funds who are not so
affiliated with the Advisor receive an annual retainer fee and $500 for each
Board of Directors meeting attended, plus reimbursement for out-of-pocket
expenses in attending meetings.
COMPENSATION TABLE
Aggregate
Name of Person Position Compensation From
Registrant
Karen Branding Director $8,750
Annalu Farber Director $8,750
* Barbara P. Hazlehurst Director $8,250
William J. Howard Director $8,750
Debra Johnson Director $8,750
Fred Lorber Director $8,750
Edward J. Stanek Director $8,750
John G. Taft Director $8,250
Steven Zumbach Chairman & Director $8,750
* Barbara P. Hazlehurst resigned as Director effective May 26, 1999.
INVESTMENT ADVISOR
Investment advisory services are provided by IMG, Des Moines, Iowa, pursuant to
an Investment Advisory Agreement dated as of February 13, 1998 (the "Investment
Advisory Agreement"). On February 17, 1998, AMCORE Financial, Inc. ("AMCORE"),
acquired IMG. AMCORE, headquartered in Rockford, IL, is a financial services
company with banking assets of $4 billion and 11 banks operating in 68 locations
in Illinois and Wisconsin. AMCORE has four financial services companies
including AMCORE Investment Group, which provides trust and brokerage services,
and through its wholly owned subsidiary, IMG, offers capital management and
mutual fund administrative services and is the investment advisor for the
Vintage Mutual Funds.
Under the Investment Advisory Agreement, the Advisor has agreed to provide
investment advisory services for the Funds. For the services provided pursuant
to the Investment Advisory Agreement, each of the Funds pays IMG a fee computed
daily and paid monthly, at an annual rate, calculated as a percentage of the
average daily net assets of that Fund, of 0.37% for the Government Assets Fund,
of 0.35% for the Liquid Assets and Municipal Assets Funds, of 0.59% for the
Limited Term Bond, of 0.55% for the Bond Fund, of 0.60% for the Income Fund, of
0.49% for the Municipal Bond Fund, of 0.75% for the Balanced and Equity Funds,
and 0.95% for the Aggressive Growth Fund. For the Government Assets, Limited
Term Bond and Municipal Bond Funds, the fees are stated net of waivers. In
addition, IMG may periodically waive all or a portion of its advisory fee with
respect to any Fund to increase the net income of the Fund available for
distribution as dividends.
The total investment advisory fees paid for the Funds referenced below for the
fiscal year ended March 31, 1999:
33
<PAGE>
<TABLE>
<S> <C>
Government Assets Fund $544,173
Liquid Assets Fund $463,497
Municipal Assets Fund $141,640
Limited Term Bond Fund $308,131
Bond Fund $99,692
Income Fund $569,326
Municipal Bond Fund $246,964
Balanced Fund $518,744
Equity Fund $3,608,411
Aggressive Growth Fund $1,019,527
</TABLE>
The total investment advisory fees waived for the Funds referenced below for
the fiscal year ended March 31, 1999:
<TABLE>
<S> <C>
Government Assets Fund $52,738
Municipal Bond Fund $51,228
</TABLE>
The total investment advisory fees paid for the funds referenced below for
the fiscal year ended March 31, 1998, are as follows:
<TABLE>
<S> <C>
Government Assets Fund $614,671
Limited Term Bond Fund $295,198
Income Fund $597,102
Municipal Bond Fund $280,923
Balanced Fund $337,619
Equity Fund $2,918,334
Aggressive Growth Fund $722,762
</TABLE>
The total investment advisory fees paid by the respective Funds for the period
from July 1, 1997, to March 31, 1998, are as follows:
<TABLE>
<S> <C>
Liquid Assets Fund $181,329
Municipal Assets Fund $ 62,948
</TABLE>
The total investment advisory fees paid by the Bond Fund for the period from
May 1, 1998, to March 31, 1999, are $21,275.
The total investment advisory fees earned by the previous advisor, AMCORE
Capital Management, Inc., ("AMCORE"), for the fiscal years ended
March 31, 1996 and March 31, 1997, by the respective predecessor Funds are as
follows:
<TABLE>
<CAPTION>
PREDECESSOR FUND
For Fiscal Years Ended March 31 1996 1997
<S> <C> <C>
AMCORE Vintage U.S. Government Fund $307,937 $602,877
AMCORE Vintage Fixed Total Return Fund(1) $243,794 $306,666
AMCORE Vintage Fixed Income Fund $471,823 $528,149
AMCORE Vintage Intermediate Tax-Free Fund $116,481 $259,581
AMCORE Vintage Balanced Fund(2) $101,842 $139,017
AMCORE Vintage Equity Fund $1,328,833 $1,837,312
AMCORE Vintage Aggressive Growth Fund(3) $81,829 $356,135
</TABLE>
The total investment advisory fees waived or assumed by the previous advisor,
AMCORE Capital Management, Inc., ("AMCORE"), for the fiscal years ended
March 31, 1996 and March 31, 1997, by the respective predecessor Funds are as
follows:
<TABLE>
<CAPTION>
PREDECESSOR FUND
For Fiscal Years Ended March 31 1996 1997
<S> <C> <C>
AMCORE Vintage U.S. Government Fund $253,524 $0
AMCORE Vintage Fixed Total Return Fund(1) $0 $0
AMCORE Vintage Fixed Income Fund $0 $0
AMCORE Vintage Intermediate Tax-Free Fund $95,510 $0
AMCORE Vintage Balanced Fund(2) $0 $0
AMCORE Vintage Equity Fund $0 $0
AMCORE Vintage Aggressive Growth Fund(3) $0 $0
</TABLE>
(1) From commencement of operations on June 15, 1995
(2) From commencement of operations on June 1, 1995
(3) From commencement of operations on September 29, 1995
The total investment advisory fees earned by Investors Management Group,
("IMG"), for the fiscal years ended June 30, 1996 and June 30, 1997, by the
respective predecessor Funds are as follows:
<TABLE>
<CAPTION>
PREDECESSOR FUND
For Fiscal Years Ended June 30 1996 1997
<S> <C> <C>
Liquid Assets Fund $444,793 $428,125
Municipal Assets Fund $43,217 $51,871
</TABLE>
34
<PAGE>
The total investment advisory fees waived or assumed by Investors Management
Group, ("IMG"), for the fiscal years ended June 30, 1996 and June 30, 1997, by
the respective predecessor Funds are as follows:
<TABLE>
<CAPTION>
PREDECESSOR FUND
For Fiscal Years Ended June 30 1996 1997
<S> <C> <C>
Liquid Assets Fund $0 $0
Municipal Assets Fund $0 $31,087
</TABLE>
The total investment advisory fees earned by Investors Management Group,
("IMG"), for the fiscal years ended April 30, 1996 and April 30, 1997, by the
respective predecessor Funds are as follows:
<TABLE>
<CAPTION>
PREDECESSOR FUND
For Fiscal Years Ended April 30 1996 1997
<S> <C> <C>
IMG Bond Fund(1) $15,625 $23,870
</TABLE>
(1) From commencement of operations on July 7, 1995
Unless sooner terminated, the Investment Advisory Agreement will continue in
effect as to each Fund until February 2000 and from year to year thereafter, if
such continuance is approved at least annually by the Company's Board of
Directors or by vote of a majority of the outstanding shares of the relevant
Fund, and a majority of the Directors who are not parties to the Investment
Advisory Agreement or interested persons (as defined in the 1940 Act) of any
party to the Investment Advisory Agreement by votes cast in person at a meeting
called for such purpose. The Investment Advisory Agreement is terminable as to a
Fund at any time on 60 days' written notice without penalty by the Directors, by
vote of a majority of the outstanding shares of that Fund, or by IMG. The
Investment Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that IMG shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the Investment Advisory Agreement, except a
loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of IMG in the performance of its duties,
or from reckless disregard by IMG of its duties and obligations thereunder.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, IMG determines, subject to the
general supervision of the Board of Directors of the Company and in accordance
with each Fund's investment objective and restrictions, which securities are to
be purchased and sold by a Fund, and which brokers are to be eligible to execute
such Fund's portfolio transactions. Purchases and sales of portfolio securities
with respect to the Funds usually are principal transactions in which portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions on stock
exchanges involve the payment of negotiated brokerage commissions. Transactions
in the over-the-counter market are generally principal transactions with
dealers. With respect to the over-the-counter market, IMG, where possible, will
deal directly with dealers who make a market in the securities involved except
in those circumstances where better price and execution are available elsewhere.
The Company, on behalf of the Funds, will not execute portfolio transactions
through, acquire portfolio securities issued by, make savings deposits in, or
enter into repurchase or reverse repurchase agreements with AMCORE Investment
Group, N.A. the Distributor, or their affiliates, and will not give preference
to AMCORE Investment Group, N.A. correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, and reverse
repurchase agreements.
35
<PAGE>
Investment decisions for each Fund are made independently from those for the
other Funds or any other investment company or account managed by IMG. Any such
other Fund, investment company or account may also invest in the same securities
as the Company on behalf of the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of more than one Fund
or a Fund and another investment company or account, the transaction will be
averaged as to price, and available investments will be allocated as to amount
in a manner which IMG believes to be equitable to the Fund(s) and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtained by a Fund. To the extent permitted by law, IMG may aggregate
the securities to be sold or purchased for a Fund with those to be sold or
purchased for the other Funds or for other investment companies or accounts in
order to obtain best execution. As provided by the Investment Advisory
Agreement, in making investment recommendations for the Funds, IMG will not
inquire or take into consideration whether an issuer of securities proposed for
purchase or sale by the Funds is a customer of AMCORE its parent or its
subsidiaries or affiliates and, in dealing with its customers, AMCORE, its
parent, subsidiaries, and affiliates will not inquire or take into consideration
whether securities of such customers are held by the Funds.
The policy of each of the Funds, regarding purchases and sale of securities for
its portfolio, is that primary consideration be given to obtaining the most
favorable prices and efficient execution of transactions. In seeking to
implement the Fund's policies, IMG effects transactions with those brokers and
dealers whom IMG believes provide the most favorable prices and are capable of
providing efficient executions. If IMG believes such price and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or IMG. Such services may include, but
are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investments; wire services; and appraisals
or evaluations of portfolio securities. Such information may be useful to IMG in
serving both the Funds and other clients and conversely, supplemental
information obtained by the placement of business of other clients may be useful
to IMG in carrying out its obligations to the Funds.
Subject to applicable limitations of the federal securities laws, broker-dealers
may receive commissions for agency transactions that are in excess of the amount
of commission charged by other broker-dealers in recognition of their research
or execution services. In order to cause the Funds to pay such higher
commissions, IMG must determine in good faith that such commissions are
reasonable in relation to the value of the brokerage and/or research services
provided by such executing broker-dealers, viewed in terms of a particular
transaction or IMG's overall responsibilities to the Funds. In reaching this
determination, IMG will not attempt to place a specific dollar value on the
brokerage and/or research services provided, or to determine what portion of the
compensation should be related to those services.
Total brokerage commissions paid by the respective Funds for the fiscal year
ended March 31, 1999, are as follows:
<TABLE>
<S> <C>
Balanced Fund $47,689
Equity Fund $540,289
Aggressive Growth Fund $136,494
</TABLE>
Total brokerage commissions paid by the respective Funds for the fiscal year
ended March 31, 1999, are as follows:
<TABLE>
<S> <C>
Balanced Fund $46,209
Equity Fund $485,253
Aggressive Growth Fund $123,967
</TABLE>
Total brokerage commissions paid for the fiscal years ended March 31, 1996
and March 31, 1997, by the respective predecessor Funds are as follows:
<TABLE>
<CAPTION>
PREDECESSOR FUND
For Fiscal Years Ended March 31 1996 1997
<S> <C> <C>
AMCORE Vintage Balanced Fund $9,625 $28,496
36
<PAGE>
AMCORE Vintage Equity Fund $214,078 $290,166
AMCORE Vintage Aggressive Growth Fund $28,295 $83,370
</TABLE>
None of such commissions were paid to any affiliate of the Funds, AMCORE or
AMCORE Investment Group, N.A.
BANKING LAWS
IMG, AMCORE Investment Group N.A. and their brokerage affiliates believe that
they possess the legal authority to perform the services for the Funds
contemplated by the Prospectus, this SAI, and Rule 12b-1 Agreement described
below without violation of applicable statutes and regulations. Counsel has
advised IMG, AMCORE Investment Group N.A. and their brokerage affiliates that,
while the question is not free from doubt, such laws should not prevent IMG,
AMCORE Investment Group N.A. and their brokerage affiliates from providing the
services required of it under the Rule 12b-1 Agreement. Future changes in either
federal or state statutes and regulations relating to the permissible activities
of banks or bank holding companies and the subsidiaries or affiliates of those
entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict IMG, AMCORE Investment Group N.A. or their brokerage affiliates from
continuing to perform such services for the Funds. Depending upon the nature of
any changes in the services which could be provided by IMG, AMCORE Investment
Group N.A. or their brokerage affiliates the Board of Directors of the Company
would review the Funds' relationship with IMG or AMCORE Investment Group N.A.
and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of IMG, AMCORE Investment Group, N.A. and their
brokerage affiliates and/or its affiliated and correspondent banks in connection
with Customer purchases of shares of the Funds, those banks might be required to
alter materially or discontinue the services offered by them to Customers. It is
not anticipated, however, that any change in the Company's method of operations
would affect its net asset value per share or result in financial losses to any
Customer.
ADMINISTRATOR
IMG serves as administrator (the "Administrator") to the Funds pursuant to a
Management and Administration Agreement dated October 30, 1997 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of each Fund (other than those performed by the Advisor under the
Investment Advisory Agreement, the Custodian under the Custodian Agreement, by
the Transfer Agent under the Transfer Agency Agreement and by the Fund
Accountant under the Fund Accounting Agreement.)
Under the Administration Agreement, the Administrator has agreed to maintain
office facilities; furnish statistical and research data, clerical, certain
bookkeeping services and stationery and office supplies; prepare the periodic
reports to the Commission on Form N-SAR or any replacement forms therefor;
compile data for, prepare for execution by the Funds and file all of the Funds'
federal and state tax returns and required tax filings other than those required
to be made by the Funds' Custodian and Transfer Agent; prepare compliance
filings pursuant to state securities laws with the advice of the Company's
counsel; assist to the extent requested by the Funds with the Fund's preparation
of its Annual and Semi-Annual Reports to shareholders and its Registration
Statement; compile data for, prepare and file timely Notices to the Commission
required pursuant to Rule 24f-2 under the 1940 Act; keep and maintain the
financial accounts and records of each Fund, including calculation of daily
expense accruals; and generally assists in all aspects of the Funds' operations
other than those performed by IMG under the Investment Advisory Agreement, by
the Custodian under the Custodian Agreement, by the Distributor under the
Distribution Agreement, by the Transfer Agent under the Transfer Agency
Agreement and by the Fund Accountant under the Fund Accounting
37
<PAGE>
Agreement. Under the Administration Agreement, the Administrator may delegate
all or any part of its responsibilities thereunder.
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement,
equal to the lesser of (1) a fee calculated daily and paid periodically, at the
annual rate equal to 0.21% of the average daily net assets of the Liquid Assets
and Municipal Assets Fund, 0.21% of the average daily net assets of the
Government Assets Fund, and 0.26% of the average daily net assets for all other
Vintage Mutual Funds or (2) such other fee as may be agreed upon in writing by
the Company and the Administrator. The Administrator may periodically waive all
or a portion of its fee with respect to any Fund in order to increase the net
income of one or more of the Funds available for distribution as dividends.
Unless sooner terminated as provided therein, the Administration Agreement will
continue in effect until December 31, 2000. The Administration Agreement
thereafter shall be renewed automatically for successive annual terms, unless
written notice not to renew is given by the non-renewing party to the other
party at least 60 days prior to the expiration of the then-current term. The
Administration Agreement is terminable with respect to a particular Fund only
upon mutual agreement of the parties to the Administration Agreement and for
cause (as defined in the Administration Agreement) by the party alleging cause,
on not less than 60 days' notice by the Company's Board of Directors or by the
Administrator.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by any of the
Funds in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
the Administrator of its obligations and duties thereunder.
DISTRIBUTOR
BISYS Fund Services Limited Partnership serves as distributor to the Funds
pursuant to the Distribution Agreement dated February 13, 1998, (the
"Distribution Agreement"). Unless otherwise terminated, the Distribution
Agreement will continue in effect until April 9, 2000, if such continuance is
approved at least annually (i) by the Company's Board of Directors or by the
vote of a majority of the outstanding shares of the Funds and (ii) by the vote
of a majority of the Directors of the Company who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement may be terminated
in the event of any assignment, as defined in the 1940 Act.
In its capacity as Distributor, BISYS Fund Services Limited Partnership solicits
orders for the sale of shares, advertises and pays the costs of advertising,
office space and the personnel involved in such activities. The Distributor
receives no compensation under the Distribution Agreement with the Company, but
may receive compensation under the Distribution and Shareholder Service Plan
described below.
The Distributor received $30,080 in commissions on the AMCORE Vintage Equity
Fund, predecessor to the Equity Fund, for the fiscal year ended March 31, 1995,
of which it retained $5,751 after dealer reallowances. The Distributor received
no commissions on sales of the AMCORE Vintage Fixed Income Fund, predecessor to
the Income Fund, or the AMCORE Vintage Intermediate Tax-Free Fund, predecessor
to the Municipal Bond Fund for the fiscal year ended March 31, 1995. The Funds
are no longer sold subject to commissions and the Distributor received no
commissions for the fiscal years ended March 31, 1997, March 31, 1998, and March
31, 1999.
The Company has adopted a Distribution and Shareholder Service Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act under which the Funds are authorized
to pay the Distributor for payments it makes to Participating Organizations.
38
<PAGE>
As authorized by the Plan, the Distributor will enter into Shareholder
Agreements with Participating Organizations, including AMCORE Financial, Inc.,
or its affiliates, pursuant to which the Participating Organization agrees to
provide certain administrative and shareholder support services in connection
with shares of a Fund purchased and held by the Participating Organization for
the accounts of its Customers and shares of a Fund purchased and held by
Customers of the Participating Organization, including, but not limited to,
processing automatic investments of Participating Organization's Customer
account cash balances in shares of a Fund and establishing and maintaining the
systems, accounts and records necessary to accomplish this service, establishing
and maintaining Customer accounts and records, processing purchase and
redemption transactions for Customers, answering routine Customer questions
concerning the Funds and providing such office space, equipment, telephone
facilities and personnel as is necessary and appropriate to accomplish such
matters. In consideration of such services, the Participating Organization may
receive a monthly fee, computed at an annual rate of the average aggregate net
asset value of the shares of the Fund held during the period in Customer
accounts for which the Participating Organization has provided services under
this Agreement. The Distributor will be compensated by a Fund up to the amount
of any payments it makes to Participating Organization under the Rule 12b-1
Agreement. The maximum fee is 0.50% on "S" shares of Liquid Assets and 0.25% on
all other Classes and Funds. Currently, such fees are limited to 0.40% for "S"
shares of Liquid Assets, 0.15% for "S2" Shares of Liquid Assets, 0.15% for "S"
shares of Municipal Assets and 0.00% for all other Classes and Funds. However,
IMG as Advisor and Administrator to the Company may in its sole discretion make
payments to the Distributor to supplement shareholder fees paid by the Company
up to the maximum fee approved by the Plan without further notice to
shareholders and at no cost to the Company.
As required by Rule 12b-1, the Plan was approved by the shareholders of each
Class of shares of a Fund and by the Board of Directors, including a majority of
the Directors who are not interested persons of the Funds and who have no direct
or indirect financial interest in the operation of the Plan (the "Independent
Directors"). The Plan may be terminated with respect to a Fund by vote of a
majority of the Independent Directors, or by vote of a majority of the
outstanding shares of the Fund. The Directors review quarterly a written report
of such costs and the purposes for which such costs have been incurred. The Plan
may be amended by vote of the Directors including a majority of the Independent
Directors, cast in person at a meeting called for that purpose. However, any
change in the Plan that would materially increase the distribution cost to a
Fund requires shareholder approval. For so long as the Plan is in effect,
selection and nomination of the Independent Directors shall be committed to the
discretion of such disinterested persons.
All agreements with any person relating to the implementation of the Plan may be
terminated, with respect to a Fund, at any time on 60 days' written notice
without payment of any penalty, by vote of a majority of the Independent
Directors or by vote of a majority of the outstanding shares of the Fund. The
Plan will continue in effect for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
Independent Directors, and (ii) by the vote of a majority of the entire Board of
Directors cast in person at a meeting called for that purpose. The Board of
Directors has a duty to request and evaluate such information as may be
reasonably necessary for it to make an informed determination of whether the
Plan should be implemented or continued. In addition the Directors in approving
the Plan must determine that there is a reasonable likelihood that the Plan will
benefit each Fund and its shareholders.
The Board of Directors of the Company believes that the Plan is in the best
interests of each of the Funds to which it applies since it encourages Fund
growth. As a Fund grows in size, certain expenses, and therefore total expenses
per Share, may be reduced and overall performance per Share may be improved.
For the fiscal year ended March 31, 1999, Government Assets, Limited Term Bond,
Income, Municipal Bond, Balanced, Equity and Aggressive Growth Funds paid no
39
<PAGE>
distribution fees. For the fiscal year ended March 31, 1999, the Liquid Assets
Fund paid distribution fees in the amount of $330,103; and the Municipal Assets
Fund paid distribution fees in the amount of $10,993. Distribution fees cover
payments made by the Distributor to Participating Organizations.
ADMINISTRATIVE SERVICES PLAN
The Company has adopted an Administrative Services Plan (the "Services Plan")
pursuant to which each Fund is authorized to pay compensation to banks and other
financial institutions (each a "Participating Organization"), which may include
AMCORE Financial, Inc., its correspondent and affiliated banks, which agree to
provide certain ministerial, recordkeeping and/or administrative support
services for their customers or account holders (collectively, "customers") who
are the beneficial or record owner of shares of that Fund. In consideration for
such services, a Participating Organization receives a fee from a Fund, computed
daily and paid monthly, at an annual rate of up to 0.25% of the average daily
net asset value of shares of that Fund owned beneficially or of record by such
Participating Organization's customers for whom the Participating Organization
provides such services.
The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Participating Organizations receiving such compensation
to perform certain ministerial, recordkeeping and/or administrative support
services with respect to the beneficial or record owners of shares of the Funds,
such as processing dividend and distribution payments from the Fund on behalf of
customers, providing periodic statements to customers showing their positions in
the shares of the Fund, providing sub-accounting with respect to shares
beneficially owned by such customers and providing customers with a service that
invests the assets of their accounts in shares of the Fund pursuant to specific
or pre-authorized instructions.
As authorized by the Services Plan, the Company has entered into Servicing
Agreements with Participating Organizations pursuant to which the Participating
Organizations has agreed to provide certain administrative support services in
connection with shares of the Funds owned of record or beneficially by its
customers. Such administrative support services may include, but are not limited
to, (i) processing dividend and distribution payments from a Fund on behalf of
customers, (ii) providing periodic statements to its customers showing their
positions in the shares; (iii) arranging for bank wires; (iv) responding to
routine customer inquiries relating to services performed by the Adviser; (v)
providing sub-accounting with respect to the shares beneficially owned by the
Participating Organization's customers or the information necessary for
sub-accounting; (vi) if required by law, forwarding shareholder communications
from a Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to its
customers; (vii) aggregating and processing purchase, exchange, and redemption
requests from customers and placing net purchase, exchange, and redemption
orders for customers; and (viii) providing customers with a service that invests
the assets of their account in the shares pursuant to specific or pre-authorized
instructions. In consideration of such services, the Company, on behalf of each
Fund, has agreed to pay each Participating Organization a monthly fee, computed
at an annual rate of 0.25% of the average aggregate net asset value of shares of
that Fund held during the period by customers for whom the Participating
Organization has provided services under the Servicing Agreement. At present,
the Company pays servicing fees on the Classes or Funds as follows: 0.25%
annually on the "S" shares of Equity, Liquid Assets and Municipal Assets Funds,
and 0.15% each on the "T" shares of the Liquid Assets and Municipal Assets
Funds. The Company pays no servicing fees on the other Vintage Funds or Classes
offered by a Prospectus, although it may begin to do so at any time without
further notice to shareholders. IMG, as Advisor and Administrator, may
supplement the Servicing Fees paid by the Company to the Participating
Organization up to the maximum fee approved by the Services Plan without further
notice to shareholders and at no cost to the Company.
The Glass-Steagall Act and other applicable laws prohibit banks from engaging in
the business of underwriting, selling, or distributing securities. Insofar as
40
<PAGE>
Participating Organizations (including banks) are compensated under the Plans,
their only function will be to perform administrative and shareholder services
for their clients who wish to invest in the Funds. If a participating
Organization at a future date is prohibited from acting in this capacity, the
shareholder may lose the services provided by the Participating Organization;
however, it is not expected that the shareholders would incur any adverse
financial consequences.
CUSTODIAN
Bankers Trust Company, New York, New York, serves as custodian (the "Custodian")
for the Funds pursuant to the Custodian Agreement between the Company and the
Custodian (the "Custodian Agreement"). The Custodian's responsibilities include
safeguarding and controlling each Fund's cash and securities, handling the
receipt and delivery of securities, and collecting interest on each Fund's
investments. In consideration of such services, each of the Funds pays the
Custodian an annual fee plus fixed fees charged for certain portfolio
transactions and out-of-pocket expenses.
Unless sooner terminated, the Custodian Agreement will continue in effect until
terminated by either party upon 60 days' advance written notice to the other
party. Notwithstanding the foregoing, the Custodian Agreement, with respect to a
Fund, must be approved at least annually by the Company's Board of Directors or
by vote of a majority of the outstanding shares of that Fund, and a majority of
the Directors who are not parties to the Custodian Agreement or interested
persons (as defined in the 1940 Act) of any party to the Custodian Agreement
("Disinterested Persons") by votes cast in person at a meeting called for such
purpose.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
IMG also serves as the Funds' transfer agent (the "Transfer Agent") to "S"
shares of the Government Assets Fund, "S", "S2" and "I" shares of the Liquid
Assets Fund, and "S" and "I" shares of the Municipal Assets Fund, pursuant to a
Transfer Agency Agreement dated October 30, 1997. BISYS Fund Services, Inc.,
3435 Stelzer Road, Columbus, Ohio 43219 serves as transfer agent (the "Transfer
Agent") for all other Funds pursuant to a Transfer Agency Agreement dated
October 30, 1997. Pursuant to such Agreements, the Transfer Agent, among other
things, performs the following services in connection with each of the Funds'
shareholders of record: maintenance of shareholder records for each of the
Fund's shareholders of record; processing shareholder purchase and redemption
orders; processing transfers and exchanges of shares of the Funds on the
shareholder files and records; processing dividend payments and reinvestments;
and assistance in the mailing of shareholder reports and proxy solicitation
materials. For such services the Transfer Agent receives a fee based on the
number of shareholders of record and out-of-pocket expenses.
In addition, IMG provides certain fund accounting services to the Funds pursuant
to a Fund Accounting Agreement dated February 13, 1998. IMG receives a fee from
each Fund for such services equal to a fee computed daily and paid periodically
at an annual rate of 0.03% of that Fund's average daily net assets. Under such
Agreement, IMG maintains the accounting books and records for each Fund,
including journals containing an itemized daily record of all purchases and
sales of portfolio securities, all receipts and disbursements of cash and all
other debits and credits, general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, including interest
accrued and interest received, and other required separate ledger accounts;
maintains a monthly trial balance of all ledger accounts; performs certain
accounting services for the Fund, including calculation of the net asset value
per Share, calculation of the dividend and capital gain distributions, if any,
and of yield, reconciliation of cash movements with the Custodian, affirmation
to the Custodian of all portfolio trades and cash settlements, verification and
reconciliation with the Custodian of all daily trade activity; provides certain
reports; obtains dealer quotations, prices from a pricing service or matrix
prices on all portfolio securities in order to mark the portfolio
41
<PAGE>
to the market; and prepares an interim balance sheet, statement of income and
expense, and statement of changes in net assets for each Fund.
INDEPENDENT AUDITORS
McGladrey & Pullen, LLP, 400 Locust Street, Suite 640, Des Moines, Iowa
50309-2372, has been selected as independent auditors for the Company for the
fiscal year ended March 31, 1999. McGladrey & Pullen, LLP will perform an annual
audit of the Funds' financial statements and provide other services related to
filings with respect to securities regulations. Reports of their activities will
be provided to the Company's Board of Directors.
LEGAL COUNSEL
Cline, Williams, Wright, Johnson & Oldfather, 19th Floor, 233 S. 13th, Lincoln,
Nebraska 68508, is counsel to the Company.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES
The Company is a Maryland corporation, organized on November 16, 1994. The
Company's Articles of Incorporation are on file with the Secretary of State of
Maryland. The Articles of Incorporation authorize the Board of Directors to
issue 100,000,000,000 shares, with a par value of $0.001 per share. The Company
consists of several funds organized as separate series of shares. Some series
are further divided presently in up to four additional "classes" of shares that
bear different class level fees. Additional classes of a series may be
authorized in the future. At present, only the Government Assets, Liquid Assets,
Municipal Assets, and Vintage Equity Funds are offered with classes. The
establishment of classes of shares was approved by the Board of Directors under
the provisions of a plan adopted pursuant to Rule 18f-3, which Plan sets forth
the basis for allocating certain expenses among the classes of the Company's
shares. Under Rule 18f-3 and the plan the Company is permitted to establish
separate classes that allow for different arrangement for shareholder services,
distribution of shares and other services and to pay different amounts of the
expenses.
As used in the Prospectus and in the SAI, "assets belonging to a Fund" means the
consideration received by the Fund upon the issuance or sale of shares in that
Fund, together with all income, earnings, profits, and proceeds derived from the
investment thereof, including any proceeds from the sale, exchange, or
liquidation of such investments, and any funds or amounts derived from any
reinvestment of such proceeds, and any general assets of the Company not readily
identified as belonging to a particular Fund that are allocated to the Fund by
the Company's Board of Directors. The Board of Directors may allocate such
general assets in any manner it deems fair and equitable. Determinations by the
Board of Directors of the Company as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to the Fund are conclusive. All consideration
received by the Funds for shares of one of the Funds and all assets in which
such consideration is invested, belong to that Fund (subject only to the rights
of creditors of the Fund) and will be subject to the liabilities related
thereto. The income and expenses attributable to one Fund are treated separately
from those of the other Funds.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Board of Directors may grant in its discretion. When
issued for payment as described in this SAI, the shares will be fully paid and
nonassessable. In the event of a liquidation or dissolution of the Company,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution. All
shares are held in
42
<PAGE>
uncertificated form and will be evidenced by the appropriate notation on the
books of the Transfer Agent.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Company shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
Fund affected by the matter. For purposes of determining whether the approval of
a majority of the outstanding shares of a Fund will be required in connection
with a matter, a Fund will be deemed to be affected by a matter unless it is
clear that the interests of each Fund in the matter are identical, or that the
matter does not affect any interest of the Fund. Under Rule 18f-2, the approval
of an investment advisory agreement or any change in investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority of
the outstanding shares of such Fund. Approval of changes to the Rule 12b-1 Plan
applicable to a Fund, or to a Class of shares of a Fund would only be
effectively acted upon with respect to the Fund or to a Class of shares of a
Fund, if approved by a majority of the outstanding shares of such Fund or Class
of shares. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Directors may be effectively acted upon by
shareholders of the Company voting without regard to series.
SHARE CLASSES:
SHARE CLASS CLASS DESCRIPTION
"S" and "S2" These shares are normally offered through financial
institutions providing automatic "Sweep" investment
programs to their customers. These shares bear
separate distribution and/or shareholder servicing
fees. Participating organizations selling or
servicing these shares may receive different
compensation with respect to one class over
another.
"S" Shares of These shares are offered to all shareholders,
the Equity Fund except those who qualify for "T" shares of the
Equity Fund. See "T" Shares of the Equity Fund
below.
"T" These shares offer a check writing privilege and
are also offered through trust organizations or
others providing shareholder services such as
establishing and maintaining custodial accounts and
records for their customers who invest in "T"
shares, assisting customers in processing purchase,
exchange and redemption requests and responding to
customers' inquiries concerning their investments,
though they may also be used in "sweep" programs.
These shares bear separate distribution and/or
shareholder servicing fees. Participating
organizations selling or servicing these shares may
receive different compensation with respect to one
class over another.
"T" Shares of These shares are offered solely to fiduciary
the Equity Fund accounts of AMCORE Investment Group, N.A. over
which AMCORE Investment Group, N.A. exercises
investment discretion.
"I" These shares pay no shareholder or servicing fees
and so are normally offered directly by the
distributor or through trust organizations
providing fiduciary account services for an
additional fee.
Shares are offered to individual and institutional investors acting on their own
behalf or on behalf of their customers and bear a pro rata portion of all
operating expenses paid by each Fund.
43
<PAGE>
SHAREHOLDER MEETINGS
The Maryland Corporation Law permits registered investment companies to operate
without an annual meeting of shareholders under specified circumstances if an
annual meeting is not required by the 1940 Act. The Fund has adopted the
appropriate Bylaw provisions and may not hold an annual meeting in any year in
which the election of Directors is not required to be acted on by shareholders
under the 1940 Act.
There normally will be no meetings of shareholders for the purpose of electing
Directors unless and until such time as less than a majority of the Directors
holding office have been elected by shareholders at which time the Directors
then in office will call a shareholders' meeting for the election of Directors.
The Bylaws also contain procedures for removal of Directors by shareholders. At
any meeting of shareholders, duly called and at which a quorum is present, the
shareholders may, by the affirmative vote of the holders of a majority of the
votes entitled to be cast thereon, remove any Director or Directors from office
and may elect a successor or successors to fill any resulting vacancies for the
unexpired terms of removed Directors.
Upon the written request of the holders of shares entitled to not less than 10
percent of all the votes entitled to be cast at such meeting, the Secretary of
the Funds shall promptly call a special meeting of shareholders for the purpose
of voting upon the question of removal of any Director. Whenever 10 or more
shareholders of record who have been such for at least six months preceding the
date of application, and who hold in the aggregate either shares having a net
asset value of at least $25,000 or at least 1 percent of the total outstanding
shares, whichever is less, shall apply to the Secretary in writing, stating that
they wish to communicate with other shareholders with a view to obtaining
signatures to a request for a meeting as described above and accompanied by a
form of communication and request which they wish to transmit, the Secretary
shall within five business days after such application either: (1) afford to
such applicants access to a list of the names and addresses of all shareholders
of record; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the proposed
communication and form of request.
If the Secretary elects to follow the course specified in clause (2) of the last
sentence of the preceding paragraph, the Secretary, upon the written request of
such applicants, accompanied by a tender or the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as recorded on the
books unless within five business days after such tender the Secretary shall
mail to such applicants and file with the Securities and Exchange Commission,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Board of Directors to the effect that in their
opinion either such material contains untrue statements of fact or omits to
state facts necessary to make the statements contained therein not misleading,
or would be in violation of applicable law, and specifying the basis of such
opinion.
After opportunity for hearing upon the objections specified in the written
statement so filed, the Securities and Exchange Commission may, and if demanded
by the Board of Directors or by such applicants shall, enter an order either
sustaining one or more of such objections or refusing to sustain any of them. If
the Securities and Exchange Commission shall enter an order refusing to sustain
any of such objections, or if, after the entry of an order sustaining one or
more of such objections, the Securities and Exchange Commission shall find,
after notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail copies
of such material to all shareholders with reasonable promptness after the entry
of such order and the renewal of such tender.
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<PAGE>
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held, and will vote in
the aggregate and not by series or Class except as otherwise expressly required
by law. For example, shareholders of each Fund will vote in the aggregate with
other shareholders of the Company with respect to the election of Directors and
ratification of the selection of independent auditors. However, shareholders of
a particular Fund will vote as a Fund, and not in the aggregate with other
shareholders of the Company, for purposes of approval of that Fund's investment
advisory agreement, Plan and Services Plan, except that shareholders of the
Government Assets, the Liquid Assets, and Municipal Assets Funds will vote by
Class on matters relating to that Fund's Plan and Services Plan.
As used in the Prospectus and the SAI, a "vote of a majority of the outstanding
shares" of a Fund means the affirmative vote, at a meeting of shareholders duly
called, of the lesser of (a) 67% or more of the votes of shareholders of that
Fund present at a meeting at which the holders of more than 50% of the votes
attributable to shareholders of record of that Fund are represented in person or
by proxy, or (b) the holders of more than 50% of the outstanding votes of
shareholders of that Fund.
ADDITIONAL TAX INFORMATION
TAXATION OF THE FUNDS. Each Fund intends to qualify annually and to elect to be
treated as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code").
To qualify as a regulated investment company, each Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, and gains from the sale of securities, invest in securities
within certain statutory limits, and distribute at least 90% of its net income
each taxable year. Each Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and net
capital gains. There are tax uncertainties with respect to whether increasing
rate securities will be treated as having an original issue discount. If it is
determined that the increasing rate securities have original issue discount, a
holder will be required to include as income in each taxable year, in addition
to interest paid on the security for that year, an amount equal to the sum of
the daily portions of original issue discount for each day during the taxable
year that such holder holds the security. There may be tax uncertainties with
respect to whether an extension of maturity on an increasing rate note will be
treated as a taxable exchange. In the event it is determined that an extension
of maturity is a taxable exchange, a holder will recognize a taxable gain or
loss, which will be a short-term capital gain or loss if the holder holds the
security as a capital asset, to the extent that the value of the security with
an extended maturity differs from the adjusted basis of the security deemed
exchanged therefor.
FOREIGN TAXES. Investment income on certain foreign securities may be subject to
foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which a Fund
would be subject. However, if a Fund invests in the stock of certain foreign
corporations that constitute a Passive Foreign Investment Company ("PFIC"), then
federal income taxes may be imposed on a Fund upon disposition of PFIC
investments.
SHAREHOLDERS' TAX STATUS. Shareholders are subject to federal income tax on
dividends and capital gains received as cash or additional shares. The dividends
received deduction for corporations will apply to ordinary income distributions
to the extent the distribution represents amounts that would qualify for the
dividends received deduction to the Funds if those Funds were regular
corporations, and to the extent designated by those Funds as so qualifying.
These dividends, and any short-term capital gains are taxable as ordinary
income.
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<PAGE>
CAPITAL GAINS. Capital gains, when experienced by a Fund, could result in an
increase in dividends. Capital losses could result in a decrease in dividends.
When a Fund realizes net long-term capital gains, it will distribute them at
least once every 12 months.
BACKUP WITHHOLDING. Each Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all reportable dividends (which does not include
exempt-interest dividends) and capital gain distributions (as well as
redemptions for all Funds except the Government Assets Fund) payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability.
ADDITIONAL TAX INFORMATION CONCERNING THE MUNICIPAL ASSETS AND MUNICIPAL BOND
FUNDS
The Municipal Assets and Municipal Bond Funds each intends to qualify under the
Code to pay "exempt-interest dividends" to its shareholders. Each Fund will be
so qualified if, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consists of securities on which the interest
payments are exempt from the regular federal income tax. To the extent that
dividends distributed by each Fund to its shareholders are derived from interest
income exempt from federal income tax and are designated as "exempt-interest
dividends" by the Fund, they will be excludable from the gross incomes of the
shareholders for regular federal income tax purposes. Each Fund will inform
shareholders annually as to the portion of the distributions from the Fund that
constituted "exempt-interest dividends."
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting purchasers of shares of the Municipal Assets
and Municipal Bond Funds. No attempt is made to present a detailed explanation
of the income tax treatment of either Fund or its shareholders, and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of shares of the Municipal Assets and
Municipal Bond Funds are urged to consult their tax advisers with specific
reference to their own tax situation.
YIELDS AND TOTAL RETURNS OF THE GOVERNMENT ASSETS, LIQUID ASSETS AND MUNICIPAL
ASSETS FUNDS
The "current yield' of the Government Assets, Liquid Assets and Municipal Assets
Funds for a seven-day period (the "base period") will be computed by determining
the net change in value (calculated as set forth below) of a hypothetical
account having a balance of one share at the beginning of the period, dividing
the net change in account value by the value of the account at the beginning of
the base period to obtain the base period return, and multiplying the base
period return by 365/7 with the resulting yield figure carried to the nearest
hundredth of one percent. Net changes in value of a hypothetical account will
include the value of additional shares purchased with dividends from the
original share and dividends declared on both the original share and any such
additional shares, but will not include realized gains or losses or unrealized
appreciation or depreciation on portfolio investments. Yield may also be
calculated on a compound basis (the "effective yield") which assumes that net
income is reinvested in Fund shares at the same rate as net income is earned for
the base period.
The current yield and effective yield of the Funds will vary in response to
fluctuations in interest rates and in the expenses of the Fund. For comparative
46
<PAGE>
purposes the current and effective yields should be compared to current and
effective yields offered by competing financial institutions for the same base
period and calculated by the methods described below.
Current yields and effective yields for the seven-day period ended March 31,
1999 were as follows for the Government Assets Fund:
Current Seven-day
Yield Yield
T Shares 4.15% 4.24%
Current yields and effective yields for the seven-day period ended March 31,
1999 were as follows for the Liquid Assets Fund:
Current Seven-day
Yield Yield
S shares 3.75% 3.82%
S2 shares 4.00% 4.07%
T shares 4.25% 4.33%
I shares 4.40% 4.49%
Current yields and effective yields for the seven-day period ended March 31,
1999 were as follows for the Municipal Assets Fund:
Current Seven-day
Yield Yield
S shares 2.11% 2.13%
T shares 2.36% 2.39%
I shares 2.51% 2.54%
Each Fund may wish to publish total return figures in its sales literature and
other advertising materials. For a discussion of the manner in which such total
return figures are calculated, see "Yields and Total Returns of the Variable NAV
Funds--Total Return Calculations" below.
YIELDS AND TOTAL RETURNS OF THE VARIABLE NAV FUNDS
YIELD CALCULATIONS. Yields of each of the Funds except the Government Assets,
Liquid Assets and Municipal Assets Funds will be computed by dividing the net
investment income per share (as described below) earned by the Fund during a
30-day (or one month) period by the maximum offering price per share on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. A Fund's net investment income per
share earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
a - b
Yield = 2 [(-------- + 1)TO THE POWER OF (6) - 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 = maximum offering price per Share on the last day of the
period.
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<PAGE>
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in that Fund. Interest earned on any debt
obligations held by a Fund is calculated by computing the yield to maturity of
each obligation held by that Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
Business Day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by that Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value per share
(variable "d" in the formula). Undeclared earned income is the net investment
income that, at the end of the base period, has not been declared as a dividend,
but is reasonably expected to be and is declared as a dividend shortly
thereafter.
For the 30-day period ended March 31, 1999, the yields for the Funds were as
follows:
Limited Term Bond Fund 4.77%
Bond Fund 5.33%
Income Fund 5.53%
Municipal Bond Fund 3.24%
Balanced Fund 1.45%
Equity Fund -0.35%
Aggressive Growth Fund -0.75%
During any given 30-day period, the Advisor or the Administrator may voluntarily
waive all or a portion of their fees with respect to a Fund. Such waiver would
cause the yield of that Fund to be higher than it would otherwise be in the
absence of such a waiver.
From time to time, the tax equivalent 30-day yield of the Municipal Bond Fund
may be presented in advertising and sales literature. The tax equivalent 30-day
yield will be computed by dividing that portion of the Fund's yield which is
tax-exempt by one minus a stated tax rate and adding the product to that
portion, if any, of the yield of the Fund that is not tax-exempt.
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<PAGE>
TOTAL RETURN CALCULATIONS. Average annual total return is a measure of the
change in value of an investment in a Fund over the period covered, which
assumes any dividends or capital gains distributions are reinvested in the Fund
immediately rather than paid to the investor in cash. The Funds compute their
average annual total returns by determining the average annual compounded rates
of return during specified periods that equate the initial amount invested to
the ending redeemable value of such investment. This is done by dividing the
ending redeemable value of a hypothetical $1,000 initial payment by $1,000 and
raising the quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one from
the result. This calculation can be expressed as follows:
Average Annual ERV
Total Return = [(------)TO THE POWER OF (1/n) - 1]
P
Where: ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
N = period covered by the computation, expressed in terms of
years.
The Funds compute their aggregate total returns by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(------] - 1]
P
Where: ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Cumulative total return for the Funds as of March 31, 1999 has been:
FUND NAME AVERAGE ANNUAL TOTAL CUMULATIVE LIFE
RETURN 1 YEAR OF FUND
Limited Term Bond Fund(1) 5.01% 21.49%
Bond Fund(2) 5.95% 27.64%
Income Fund(3) 5.13% 42.79%
Municipal Bond Fund(4) 4.64% 36.70%
Balanced Fund(5) 12.66% 89.18%
Equity Fund - T shares(3) 15.87% 209.14%
Equity Fund - S shares(3) 15.71% 208.50%
Aggressive Growth Fund(6) 9.85% 92.48%
(1) From commencement of operations on June 15, 1995
(2) From commencement of operations on July 7, 1995
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<PAGE>
(3) From commencement of operations on December 15, 1992
(4) From commencement of operations on February 16, 1993
(5) From commencement of operations on June 1, 1995
(6) From commencement of operations on September 29, 1995
PERFORMANCE COMPARISONS
Investors may judge the performance of the Funds by comparing them to the
performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's
Corporation and to data prepared by Lipper Analytical Services, Inc., a widely
recognized independent service which monitors the performance of mutual funds or
Ibbotson Associates, Inc. Comparisons may also be made to indices or data
published in IBC's MONEY FUND REPORT, a nationally recognized money market fund
reporting service, Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, and U.S.A. Today. In addition to performance
information, general information about the Funds that appears in a publication
such as those mentioned above may be included in advertisements and in reports
to shareholders. The Funds may also include in advertisements and reports to
shareholders information comparing the performance of IMG or its predecessors to
other investment advisers; such comparisons may be published by or included in
Nelsons Directory of Investment Managers, Roger's, Casey/PIPER Manager Database
or CDA/Cadence.
Current yields or performance will fluctuate from time to time and are not
necessarily representative of future results. Accordingly, a Fund's yield or
performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of a Fund's quality, composition and maturity, as well
as expenses allocated to the Fund. Fees imposed upon Customer accounts by the
Adviser or its affiliated or correspondent banks for cash management services
will reduce a Fund's effective yield to Customers.
From time to time, the Fund may include general comparative information, such as
statistical data regarding inflation, securities indices or the features or
performance of alternative investments, in advertisements, sales literature and
reports to shareholders. The Funds may also include calculations, such as
hypothetical compounding examples, which describe hypothetical investment
results in such communications. Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund.
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<PAGE>
PRINCIPAL SHAREHOLDERS
As of March 31, 1999, the following persons owned 5 percent or more of the
outstanding shares of the Funds indicated:
Government Assets Fund
<TABLE>
<CAPTION>
NAME AMOUNT % OWNERSHIP
<S> <C> <C>
Swebak & Company, Rockford, IL 104.758,749.09 69.8%
Bisys Brokerage Services, Inc. 9,267,891.50 6.2%
Liquid Assets Fund - S Shares
NAME AMOUNT % OWNERSHIP
Peninsula Bank of San Diego, San Diego, CA 21,572,184.22 27.9%
Coast Commercial Bank, Santa Cruz, CA 8,757,692.37 11.3%
Emprise Financial Corp., Wichita, KS 5,848,020.00 7.6%
Commercial Federal Bank, FSB, Omaha, NE 5,239,719.72 6.8%
Community State Bank, Ankeny, IA 4,840,374.71 6.3%
Liquid Assets Fund - S2 Shares
NAME AMOUNT % OWNERSHIP
Community First National Bank, Decorah, IA 1,736,000.00 21.0%
Clackamas County Bank, Sandy, OR 1,500,000.00 18.2%
Grundy National Bank, Grundy Center, IA 1,454,878.17 17.6%
First Bankers Trust Company, Quincy, IL 1,158,358.41 14.0%
First Business Bank of Kansas City, NA, Kansas City, MO 1,047,639.26 12.7%
Bankers Trust Company, Des Moines, IA 869,203.28 10.5%
Liquid Assets Fund - T Shares
NAME AMOUNT % OWNERSHIP
AMCORE Bank, Rockford, IL 19,340,913.55 57.4%
Swebak & Company, Rockford, IL 7,587,746.75 22.5%
Liquid Assets Fund - I Shares
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 13,359,369.95 79.8%
IASD Deferred Comp, Des Moines, IA 1,152,213.75 6.9%
Municipal Assets Fund - S Shares
NAME AMOUNT % OWNERSHIP
Peninsula Bank of San Diego, San Diego, CA 4,865,563.05 61.6%
Microtronics, Inc., Iola, KS 1,394,731.00 17.7%
Coast Commercial Bank, Santa Cruz, CA 1,046,464.31 13.3%
Municipal Assets Fund - T Shares
NAME AMOUNT % OWNERSHIP
AMCORE Bank, Rockford, IL 8,706,613.39 58.2%
Swebak & Company, Rockford, IL 5,455,568.94 36.5%
Municipal Assets Fund - I Shares
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 22,170,635.61 99.0%
51
<PAGE>
Limited Term Bond Fund
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 2,336,560.21 41.6%
Firwood, Rockford, IL 1,823,628.51 32.5%
Bisys Brokerage Services, Columbus, OH 1,314,612.71 23.4%
Bond Fund
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 838,858.69 37.6%
Firwood, Rockford, IL 384,594.40 17.2%
Frank Hovar 263,144.25 11.8%
Wellmark, Des Moines, IA 138,703.10 6.2%
Income Fund
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 8,655,181.76 86.0%
Firwood, Rockford, IL 946,810.52 9.4%
Municipal Bond Fund
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 4,035,567.80 86.2%
Firwood, Rockford, IL 256,503.04 5.5%
Balanced Fund
NAME AMOUNT % OWNERSHIP
Bisys Brokerage Services, Columbus, OH 2,081,472.71 38.9%
Firwood, Rockford, IL 1,216,781.08 22.7%
Wellmark, IASD Savings & Investment Plan, Des Moines, IA 310,934.98 5.8%
Wellmark, Community Financial & Insurance, Des Moines, IA 310,728.72 5.8%
Equity Fund - S Shares
NAME AMOUNT % OWNERSHIP
Bisys Brokerage Services, Columbus, OH 4,437,194.80 40.1%
Firwood, Rockford, IL 1,188,824.70 10.7%
Equity Fund - T Shares
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 7,409,319.77 60.6%
Firwood, Rockford, IL 4,575,346.62 37.4%
Aggressive Growth Fund
NAME AMOUNT % OWNERSHIP
Swebak & Company, Rockford, IL 3,621,357.59 52.6%
Firwood, Rockford, IL 1,372,414.10 19.9%
Bisys Brokerage Services, Columbus, OH 907,936.63 13.2%
</TABLE>
MISCELLANEOUS
The Funds may include information in their Annual Reports and Semi-Annual
Reports to Shareholders that (1) describes general economic trends, (2)
describes general trends within the financial services industry or the mutual
fund industry, (3) describes past or anticipated portfolio holdings for a fund
within the Company or (4) describes investment management strategies for such
funds. Such information is provided to inform shareholders of the activities of
the Funds for the most recent fiscal year or half-year and to provide the views
of IMG and/or Company officers regarding expected trends and strategies.
52
<PAGE>
Individual Directors are elected by the shareholders and, subject to removal by
the vote of two-thirds of the Board of Directors, serve for a term lasting until
the next meeting of shareholders at which Directors are elected. Such meetings
are not required to be held at any specific intervals. Shareholders owning not
less than 10% of the outstanding shares of the Company entitled to vote may
cause the Directors to call a special meeting, including for the purpose of
considering the removal of one or more Directors. Any Director may be removed at
any meeting of shareholders by vote of two-thirds of the Company's outstanding
shares. The By-Laws provide that the Directors will assist shareholder
communications to the extent required by Section 16(c) of the 1940 Act in the
event that a shareholder request to hold a special meeting is made.
The Prospectus and this SAI omit certain of the information contained in the
Registration Statement filed with the Commission. Copies of such information may
be obtained from the Commission upon payment of the prescribed fee.
The Prospectuses and this SAI are not an offering of the securities herein
described in any state in which such offering may not lawfully be made. No
salesman, dealer, or other person is authorized to give any information or make
any representation other than those contained in the Prospectuses and this SAI.
53
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Funds for the period ended March 31, 1999, have
been audited by McGladrey & Pullen, LLP, independent auditors, as set forth in
their report thereon, which is included in the Annual Report which is
incorporated by reference herein in reliance upon such report given by the
authority of such firm as experts in accounting and auditing.
Incorporated by reference from the Funds' Annual Report of March 31, 1999:
1. Schedules of Investments, March 31, 1999;
2. Statements of Assets and Liabilities, March 31, 1999;
3. Statements of Operations for Years Ended March 31, 1999 and March 31, 1998;
4. Statements of Changes in Net Assets for the Years Ended March 31, 1999;
5. Notes to Financial Statements; and
6. Independent Auditors' Reports dated April 30, 1999.
54
<PAGE>
APPENDIX A
BOND RATINGS
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's corporate rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
"AAA" Bonds have the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA" Bonds have a very strong capacity to pay interest and repay principal and
differ from the highest rated issues only in small degrees.
"A" Bonds have a strong capacity to pay interest and repay principal although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB" Bonds are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
"BB", "B", "CCC", "CC" and "C" Bonds are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, large uncertainties or
major risk exposures to adverse conditions outweigh these. A "C" rating is
typically applied to debt subordinated to senior debt that is assigned an actual
or implied "CCC" rating. It may also be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued.
MOODY'S BOND RATINGS
"Aaa" Bonds are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edged". Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as
55
<PAGE>
can be visualized are most unlikely to impair the fundamentally strong position
of such issues.
"Aa" Bonds are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what is generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protection elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
"A" Bonds possess many favorable investment attributes and are to be considered
as upper-medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
"Baa" Bonds are considered as medium-grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
Bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba" Bonds are judged to have speculative elements; their future cannot be
considered as well assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes Bonds in
this class.
"B" Bonds generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
"Caa" Bonds are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
"Ca" Bonds represent obligations that are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
"C" Bonds are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
FITCH INVESTORS SERVICES, INC. BOND RATINGS
The Fitch Bond Rating provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents its
assessment of the issuer's ability to meet the obligations of a specific debt
issue. Fitch bond ratings are not recommendations to buy, sell or hold
securities since they incorporate no information on market price or yield
relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and of
any guarantor, as well as the political and economic environment that might
affect the future financial strength and credit quality of the issuer.
Bonds, which have the same rating, are of similar but not necessarily identical
investment quality since the limited number of rating categories cannot fully
reflect small differences in the degree of risk. Moreover, the character of the
risk factor varies from industry to industry and between corporate, health care
and municipal obligations.
In assessing credit risk, Fitch Investors Services relies on current information
furnished by the issuer and/or guarantor and other sources which it considers
reliable. Fitch does not perform an audit of the financial statements used in
assigning a rating.
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<PAGE>
Ratings may be changed, withdrawn or suspended at any time to reflect changes in
the financial condition of the issuer, the status of the issue relative to other
debt of the issuer, or any other circumstances that Fitch considers to have a
material effect on the credit of the obligor.
"AAA" rated Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an extraordinary ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" rated Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for "AAA" rated securities or more subject to
possible change over the term of the issue.
"A" rated Bonds are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB" rated Bonds are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
"BB" rated bonds are considered speculative and of low investment grade. The
obligor's ability to pay interest and repay principal is not strong and is
considered likely to be affected over time by adverse economic changes.
"B" rated Bonds are considered highly speculative. Bonds in this class are
highly protected as to the obligor's ability to pay interest over the life of
the issue and repay principal when due.
"CCC" rated Bonds may have certain identifiable characteristics which, if not
remedied, could lead to the possibility of default in either principal or
interest payments.
"CC" rated Bonds are minimally protected. Default in payment of interest and/or
principal seems probable.
"C" rated Bonds are in actual or imminent default in payment of interest or
principal.
DUFF & PHELPS, INC. LONG-TERM RATINGS
These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
that may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination. Each rating also
takes into account the legal form of the security, (e.g., first mortgage bonds,
subordinated debt, preferred stock, etc.). The extent of rating dispersion among
the various classes of securities is determined by several factors, including
relative weightings of the different security classes in the capital structure,
the overall credit strength of the issuer, and the nature of covenant
protection. Review of indenture restrictions is important to the analysis of a
company's operating and financial constraints. The Credit Rating Committee
formally reviews all ratings once per quarter (more frequently, if necessary).
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<PAGE>
- --------------------------------------------------------------------------------
RATING
Scale Definition
- --------------------------------------------------------------------------------
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
- --------------------------------------------------------------------------------
AA+ High credit quality. Protection factors are strong. Risk is modest, but
may vary slightly
AA from time to time because of economic conditions.
AA-
- --------------------------------------------------------------------------------
A+ Protection factors are average but adequate. However, risk factors are
more variable and
A greater in periods of economic stress.
A-
- --------------------------------------------------------------------------------
BBB+ Below average protection factors but still considered sufficient for
prudent investment.
BBB Considerable variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due.
Present or
- --------------------------------------------------------------------------------
BB prospective financial protection factors fluctuate according to
industry conditions or company
BB- fortunes. Overall quality may move up or down frequently within this
category.
- --------------------------------------------------------------------------------
B+ Below investment grade and possessing risk that obligations will not be
met when due.
B Financial protection factors will fluctuate widely according to
economic cycles, industry
B- conditions and/or company fortunes. Potential exists for frequent
changes in the rating within this category or into a higher or lower
rating grade.
- --------------------------------------------------------------------------------
CCC Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable
company developments.
- --------------------------------------------------------------------------------
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
- --------------------------------------------------------------------------------
DP Preferred stock with dividend averages.
- --------------------------------------------------------------------------------
SHORT-TERM RATINGS
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The categories are as follows:
"A" Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues within this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
"A-1" Designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are designated "A-1+".
"A-2" Designation indicates that the capacity for timely payment is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1".
"A-3" Designation indicates a satisfactory capacity for timely payment. Issues
with this designation, however, are somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
58
<PAGE>
"B" Issues are regarded as having only an adequate capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
"C" Issues have a doubtful capacity for payment.
"D" Issues are in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the due date even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's rates commercial paper as either Prime, which contains three categories,
or Not Prime. The commercial paper ratings are as follows:
"P-1" Issuers (or related supporting institutions) have a superior capacity for
repayment of short-term promissory obligations, normally evidenced by the
following characteristics: (i) leading market positions in well established
industries, (ii) high rates of return on funds employed, (iii) conservative
capitalization structures with moderate reliance on debt and ample asset
protection, (iv) broad margins in earnings coverage of fixed financial charges
and high internal cash generation, and (v) well established access to a range of
financial markets and assured sources of alternate liquidity.
"P-2" Issuers (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations, normally evidenced by many of
the characteristics of a "P-1" rating, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
"P-3" Issuers (or related supporting institutions) have an acceptable capacity
for repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained. "Not Prime" Issuers (or related
supporting institutions) do not fall within any of the Prime rating categories.
FITCH INVESTORS SERVICES, INC. SHORT-TERM RATINGS
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues carrying this rating have a
satisfactory degree of assurance for timely payment but the margin
of safety is not as great as the two higher categories.
Fitch-3 (Fair Credit Quality) Issues carrying this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse change is likely to
cause these securities to be rated below investment grade.
Fitch-S (Weak Credit Quality) Issues carrying this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near term adverse changes in financial
and economic conditions.
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<PAGE>
D (Default) Issues carrying this rating are in actual or imminent
payment default.
DUFF & PHELPS, INC. SHORT-TERM RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds, including trade
credit, bank lines and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
A. CATEGORY 1: HIGH GRADE
Duff 1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors
are very small.
B. CATEGORY 2: GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
C. CATEGORY 3: SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
D. CATEGORY 4: NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating
factors and market access may be subject to a high degree of
variation.
E. CATEGORY 5: DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest
payments.
THOMAS BANKWATCH (TBW) SHORT-TERM RATINGS
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less. The TBW Short-Term Ratings specifically assess the
likelihood of an untimely payment of principal or interest.
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TBW-1 The highest category; indicates a very high degree of likelihood
that principal and interest will be paid on a timely basis.
TBW-2 The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
TBW-3 The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external)
than obligations with higher ratings, capacity to service principal
and interest in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
S&P's description of its two highest municipal note ratings:
SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity,
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government.
These obligations may include Treasury bills, notes and bonds, and issues of
agencies and instrumentalities of the U.S. Government, provided such obligations
are guaranteed
61
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as to payment of principal and interest by the full faith and credit of the U.S.
Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of agencies and instrumentalities of
the U.S. Government, such as the Government National Mortgage Association, the
Export-Import Bank of the United States, the Tennessee Valley Authority, the
Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association are supported
by the right of the issuer to borrow from the Treasury; others, such as those of
the Student Loan Marketing Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the Federal Farm Credit Banks, are supported only by
the credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it were not obligated to do so by law.
62
<PAGE>
APPENDIX B
TAX-EXEMPT VS. TAXABLE YIELDS. Set forth below is a table that may be used to
compare equivalent taxable yields to tax-exempt rates of return based upon the
investor's level of taxable income. The rates shown are those in effect under
the Internal Revenue Code as of January 1, 1998 through December 31, 1998.
<TABLE>
<CAPTION>
Rates: The following TAX-EXEMPT INTEREST
Taxable Income* Equal the TAXABLE INTEREST RATES
Joint Single Marginal 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
Return Return Income
Tax
Bracket
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6,450- $2,650- 15.0%
$46,750 $26,900
$46,750- $26,900- 28.0%
$94,450 $57,450
$96,450- $57,450- 31.0%
$160,350 $129,650
$160,350- $129,650- 36.0%
$282,850 $280,000
Over Over
$282,850 $280,000 39.6%
Maximum Corporate Rate 34.0%
</TABLE>
* Net amount subject to Federal income tax after deductions and exemptions.
Assumes alternative minimum tax is not applicable and receipt of tax-exempt
interest does not cause any portion of social security benefits received to
become taxable to the taxpayer. State tax considerations are excluded.
63
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PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
Exhibit No. Description
- ---------- -----------
1(a)* Articles of Incorporation, incorporated by reference to the
Fund's Registration Statement, filed December 14, 1994
1(b)* Articles Supplementary, incorporated by reference to Post-Effective
Amendment No. 9, filed January 6, 1998
1(c)* Articles of Amendment, incorporated by reference to Post-Effective
Amendment No. 10, filed February 25, 1998
2* Bylaws, incorporated by reference to the Fund's Registration
Statement, filed December 14, 1994
3 Not applicable
4* Form of Investment Advisory Agreement, incorporated by
reference to Post-Effective Amendment No. 7 filed November 7, 1997
5*(a) Form of Distribution Agreement, incorporated by reference to
Post-Effective Amendment No. 7 filed November 7, 1997
5*(b) Distribution and Shareholder Services Plan, incorporated by
reference to Post-Effective Amendment No. 8 filed November 12, 1997
6 Not applicable
7*(a) Form of Custodial Agreement, incorporated by reference to
Post-Effective Amendment No. 7 filed November 7, 1997
7*(b) Form of Custodial Agreement, incorporated by reference to
Post-Effective Amendment No. 8 filed November 12, 1997
8*(a) Form of Transfer Agency Agreement, incorporated by reference to
Post-Effective Amendment No. 7 filed November 7, 1997
8*(b) Form of Management and Administrative Agreement, incorporated
by reference to Post-Effective Amendment No. 7 filed November 7, 1997
8*(c) Form of Fund Accounting Agreement, incorporated by reference to
Post-Effective Amendment No. 7 filed November 7, 1997
8*(d) Form of Administrative Services Plan, incorporated by reference
to Post-Effective Amendment No. 7 filed November 7, 1997
9* Opinion of Ober, Kaler & Shriver, incorporated by reference to
Pre-Effective Amendment No. 2 filed May 4, 1995
10*(a) Opinion of Ober, Kaler, Grimes & Shriver, incorporated by reference to
Post-Effective Amendment No. 4 filed March 18, 1996
<PAGE>
10*(b) Opinion of Ober, Kaler, Grimes & Shriver for Liquid Assets Fund
and Municipal Assets Fund, incorporated by reference to Post-Effective
Amendment No. 9 filed January 6, 1998
10*(c) Opinion of Ober, Kaler, Grimes & Shriver for Vintage Funds,
incorporated by reference to Post-Effective Amendment No. 9 filed
January 6, 1998
11 Consents of KPMG Peat Marwick LLP and McGladrey & Pullen LLP
12* Subscription Agreement of Initial Stockholder, incorporated by
reference to the Fund's Registration Statement, filed
December 14, 1994
13 Not applicable
15*(a) 18f3 Plan, incorporated by reference to the Pre-Effective
Amendment No. 3, filed May 18, 1995
15*(b) Amended 18f3 Plan, incorporated by reference to Post-Effective
Amendment No. 8 filed November 12, 1997
OTHERS
a* Power of Attorney, incorporated by reference to Post-Effective
Amendment No. 11 filed March 23, 1998
*All previously filed.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification by the Registrant is against public policy as
expressed in the Act and, therefore, may be unenforceable. In the event that a
claim for such indemnification (except insofar as it provides for the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted against the Registrant by such director, officer or controlling
person and the Securities and Exchange Commission is still of the same opinion,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether or not such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Section 2-418 of the Maryland General Corporation Law permits
the Registrant to indemnify directors and officers. In addition, Section 2-405.1
sets forth the standard of care for directors and Section 2-405.2 allows the
Registrant to include in the Charter provisions further limiting the liability
of the directors and officers in certain circumstances. Article ELEVENTH of
2
<PAGE>
the Articles of Incorporation included herewith as Exhibit 1(a) (the "Articles")
limits the liability of any director or officer of the Registrant arising out of
a breach of fiduciary duty, subject to the limits of the Investment Company Act
of 1940 (the "1940 Act"). Article TWELFTH of the Articles and Article VII of the
Bylaws, included herewith as Exhibit (2), makes mandatory the indemnification of
any person made or threatened to be made a party to any action by reason of the
facts that such person is or was a director, officer or employee, subject to the
limits otherwise imposed by law or by the 1940 Act.
In addition, Paragraph 8 of the Investment Advisory Agreement
included herewith as Exhibit 5(b)(1), and Paragraph 1.11 of the Distribution
Agreement, included herewith as Exhibit 6(b), provide that Investors Management
Group, Ltd., ("IMG") and BISYS Fund Services Limited Partnership, ("BISYS"),
shall not be liable to the Registrant for any error, judgment or mistake of law
or for any loss arising out of any investment or for any act or omission in the
management provided by IMG or for any distribution services provided by BISYS to
the Registrant for the performance of the duties under such agreements, except
for willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligation and duties
under such agreements. In addition, Paragraph 8 of the Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent Agreement, included herewith as
Exhibit 5(a)(2), further indemnify BISYS and IMG against certain liabilities
arising out of the performance of such agreements.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
Investors Management Group
Name Positions with Advisor Principal Occupations
(Present and for Past Two
Years)
Jay Evans President and Chief See caption "Directors and
Investment Officer Officers" in the Statement of
Additional Information forming
a part of this Registration
Statement
Mark A. McClurg Vice President and Senior See caption "Directors and
Managing Director Officers" in the Statement of
Additional Information forming
a part of this Registration
Statement.
David W. Miles Treasurer, Director, and See caption "Directors and
Senior Managing Director Officers" in the Statement of
Additional Information forming
a part of this Registration
Statement.
ITEM 27. PRINCIPAL UNDERWRITERS
(a)(1) BISYS Fund Services Limited Partnership acts as distributor for the
Vintage Mutual Funds, Inc., and also distribute the securities of Alpine Equity
Trust, The ARCH Fund, Inc., American Performance Funds, AmSouth Mutual Funds,
The BB&T Mutual Funds Group, The Coventry Group, ESC Strategic Funds, Inc., The
Eureka Funds, Governor Funds, Gradison Custodian Trust, Gradison Growth Trust,
Gradison-McDonald Cash Reserves Trust, Gradison-McDonald Municipal Custodian
Trust, Fifth Third Funds, Hirtle Callaghan Trust, HSBC Funds Trust and HSBC
Mutual Funds Trust, INTRUST Funds Trust, The Infinity Mutual Funds, Inc., The
Kent Funds, Magna Funds, Meyers Investment Trust, MMA Praxis Mutual Funds,
M.S.D.&T. Funds, Pacific Capital Funds, The Parkstone,
3
<PAGE>
Advantage Funds, Pegasus Funds, Puget Sound Alternative Investment Series Trust,
Republic Advisor Funds Trust, Republic Funds Trust, Sefton Funds Trust, SSgA
International Liquidity Fund, Summit Investment Trust, Variable Insurance Funds,
The Victory Portfolios, The Victory Variable Insurance Funds, The Victory Funds,
each of which is a open-end management investment company.
(b)(1) Information about Directors and officers of BISYS Fund Services Limited
Partnership, as of March 31, 1999, is as follows:
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Offices with BISYS Fund Positions and Offices with
Services Limited Partnership Registrant
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Amy Mitchell, 2203 Grand Avenue, Des Moines, Iowa 50312-5338, will
maintain all required accounts, books and records.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
Subject to the terms and conditions of Section 16(c) of the
Investment Company Act of 1940, the undersigned Registrant hereby undertakes to
call a meeting of shareholders for the purpose of voting upon the question of
removal of a director or directors if requested to do so by holders of at least
10 percent of a Fund's outstanding shares and to assist in communications with
other shareholders.
The Registrant hereby undertakes to furnish each person to whom a
Prospectus is delivered a copy of the Registrant's latest Annual Report to
Shareholders, upon request and without charge.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Moines, State of Iowa, on the [__]th day of July,
1999.
VINTAGE MUTUAL FUNDS, INC.
By_/s/______________________
David W. Miles, Director and President
Pursuant to the requirements of the Securities Act of 1933, the following
persons in the capacities indicated on the date indicated have signed this
Registration Statement.
Signature Title
_/s/_________ President, Principal Executive Officer,
David W. Miles Principal Financial and Accounting Officer
and Director
|
_/s/______________________ Director | _/s/________________
Karen Branding | by Mark A. McClurg
| Attorney in Fact
_/s/______________________ Director | July [__], 1999
Annalu Farber |
| |
_/s/______________________ Director |
William J. Howard |
|
_/s/______________________ Director |
Debra L. Johnson |
|
_/s/______________________ Director |
Fred Lorber |
|
_/s/______________________ Director |
Edward J. Stanek |
|
_/s/______________________ Director |
John G. Taft |
|
_/s/______________________ Director |
Steven Zumbach |
<PAGE>
VINTAGE MUTUAL FUNDS, INC.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
2 Consent of KPMG Peat
Marwick LLP
3 Consent of McGladrey & Pullen LLP
6
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
We consent to references to our Firm under the heading "Financial Highlights"
in the Prospectus, which constitutes part of the Vintage Mutual Funds, Inc.,
Registration Statement.
KPMG Peat Marwick, LLP
Des Moines, Iowa
May 26, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated April 30, 1999 on the financial
statements of the following Funds referred to therein, all of which are series
of Vintage Mutual Funds, Inc.; which financial statements are incorporated by
reference in Post-Effective Amendment No. 13 to the Company's Registration
Statement.
Government Assets Fund
Liquid Assets Fund
Municipal Assets Fund
Limited Term Bond Fund
Bond Fund
Income Fund
Municipal Bond Fund
Balanced Fund
Equity Fund
Aggressive Growth Fund
We also consent to the reference to our Firm in the Prospectus under the caption
"Financial Highlights" and in the Statement of Additional Information under the
captions "Independent and Auditors" and "Financial Statements".
McGladrey & Pullen, LLP
Des Moines, Iowa
May 27, 1999