REGISTRATION NO. 33-87498
811-08910
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. 15 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 18 [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:
MARY DOTTERER JOHN C. MILES, ESQ.
VINTAGE MUTUAL FUNDS, INC. DONALD F. BURT, ESQ.
2203 GRAND AVENUE CLINE, WILLIAMS, WRIGHT, JOHNSON & OLDFATHER
DES MOINES, IOWA 50312 19TH FLOOR, 233 S. 13TH
LINCOLN, NEBRASKA 68508
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON MAY 3, 2000 PURSUANT TO
PARAGRAPH (a)(2) OF RULE 485 UNDER THE SECURITIES ACT OF 1933.
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For more information about the Fund, the following documents are available upon
request:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
Annual and Semi-Annual Reports to shareholders contain additional information on
the Fund's investments. In the Annual Report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
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
the 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
Fund:
By mail: c/o Vintage Mutual Funds, Inc.
2203 Grand Avenue
Des Moines, IA 50312
By phone: For Information and Literature: (800) 798-1819
By e-mail: [email protected]
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 (For information only)
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(Duplicating fee required)
On the Internet: www.sec.gov
The Fund may not be available in all states. Please contact the Fund to
determine if the Fund is available for sale in your state.
File No. 811-08910
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INSTITUTIONAL RESERVES FUND
PROSPECTUS
May _____, 2000
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.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY . . . . . . . . . . . . . . . . 3
FEES AND EXPENSES OF THE FUND. . . . . . . . . . . 4
DESCRIPTION OF THE FUND. . . . . . . . . . . . . . 4
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . 7
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . 8
- HOW THE FUNDS VALUE THEIR SHARES . . . . . . . 8
- HOW TO BUY SHARES. . . . . . . . . . . . . . . 8
- HOW TO SELL SHARES . . . . . . . . . . . . . . 9
- AUTO WITHDRAWAL PLAN . . . . . . . . . . . . . 10
- AUTOMATIC REDEMPTION . . . . . . . . . . . . . 11
DIVIDENDS, DISTRIBUTIONS, AND TAXES . . . . . . . . 11
DISTRIBUTION ARRANGEMENTS . . . . . . . . . . . . . 13
FOR MORE INFORMATION ABOUT THE FUND . . . . . Back Cover
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RISK/RETURN SUMMARY
The following is a summary of certain key information about the Fund. You
will find additional information about the Funs after this summary.
In this summary, we will identify certain kinds of risks that apply to the
Fund. These risks are:
- 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 or guarantees securities to meet its obligations on those
securities or guarantees. The summary also describes specific risks that
may apply to one Fund.
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.
INSTITUTIONAL RESERVES FUND
OBJECTIVES. The investment objectives of the Fund are safety of principal
and liquidity, and to the extent consistent with these objectives, maximum
current income.
PRINCIPAL INVESTMENT STRATEGIES. The Fund is a "money market fund" that
seek to maintain a stable net asset value of $1.00 per share. The Fund
pursues its objective by maintaining a portfolio of high-quality money
market securities. The Fund primarily invests in:
- Federally insured student loans purchased through a trust, subject to
unconditional repurchase commitments from financial institutions on five
days' notice.
- U.S. Treasury bills or notes and other obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
PRINCIPAL RISKS. The principal risks of investing in the Fund are interest
rate risk and credit risk. Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the Funds.
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FEES AND EXPENSES OF THE FUNDS
SHAREHOLDER TRANSACTION EXPENSES
(Fees paid directly from your investment)............None
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets) and EXAMPLES
The Examples are to help you compare the cost of investing in the Fund with
the cost of investing in other funds. They assume that you invest $10,000
in the Fund for the periods indicated and then redeem all your shares at
the end of those periods. They also assume that your investment has a 5
percent return each year and that the Fund=s operating expenses stay the
same. Your actual costs may be higher or lower.
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OPERATING EXPENSES EXAMPLES
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Management Fees 0.35%(1) After 1 year $78
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Distribution (12b-1) Fees 0.00%(2) After 3 years $243
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Other Expenses 0.41%
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Total Fund Operating Expenses 0.76%(3)
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(1) The Fund's Adviser has waived a portion of the management fee for an
actual fee of 0.25%. The Adviser may reduce or eliminate the fee waiver at
any time.
(2) The Fund's plan allows charges of up to .25% but no fees are currently
being inposed under the plan.
(3) Total fees have been voluntarily reduced for an actual fee of 0.66%.
DESCRIPTION OF THE FUND
This section of the Prospectus provides a more complete description of the
Fund's investment objectives and principal strategies and risks. There can,
of course, be no assurance that the Fund will achieve its investment
objectives.
UNDERSTAND THE RISKS
This section describes risks that affect the Fund's portfolio as a whole.
These risks are:
- 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 or guarantees securities to meet its obligations on those
securities or guarantees.
- MANAGEMENT RISK This risk is the possibility that the Fund's managers
may make poor choices in selecting securities and that the Fund will not
perform as well as other funds.
This section also describes specific risks that may affect a particular
Fund's portfolio.
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OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
The Fund's investment objectives are safety of principal and liquidity, and
to the extent consistent with these objectives, maximum current income. As
a money market fund, the Fund must meet the requirements of SEC Rule 2a-7.
The Rule imposes strict requirements on the investment quality, maturity,
and diversification of the Fund=s investments. Under Rule 2a-7, the Fund's
investments must each have a remaining maturity of no more than 397 days
and the Fund must maintain an average weighted maturity that does not
exceed 90 days.
The Fund pursues its objectives by investing in high-quality money market
obligations. The Fund may invest in:
- redeemable, guaranteed interest-bearing participation interests ("Trust
Certificates") issued by one or more trusts created for the purpose of
acquiring the insured portion of federally insured student loans, which
may comprise up to 80 percent of the Fund's portfolio;
- U.S. Treasury bills, notes and other obligations issued or guaranteed by
the U.S. Government, its agencies, or instrumentalities; and
- repurchase agreements collateralized by the types of securities listed.
The Fund will only purchase Trust Certificates from Student Loan Trusts
formed for the purpose of purchasing federally insured student loans. The
Trust Certificates will have an original maturity of not more than 397
days, but are backed by the unconditional obligation of one or more rated
financial institutions to repurchase the student loans or the Trust
Certificates from the trust upon five days' notice from the Fund. Each
financial institution providing an unconditional repurchase commitment will
have one or more ratings in the highest category for short-term securities.
RISK CONSIDERATIONS
The Fund is subject to management risk. In addition, specific risks of the
Fund's portfolio include:
INTEREST RATE RISK. Because the Fund invests in short-term securities, a
decline in interest rates will affect the Fund's yields as these securities
mature or are sold and the Fund purchases 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 Fund invests in securities with short maturities and seeks 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.
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CREDIT RISK. This is the risk that a security=s credit rating will be
downgraded or that the issuer of a security or a guarantor will default
(fail to make scheduled interest and principal payments or fail to fulfill
its promise to repurchase securities). The Fund invests in highly rated
securities to minimize credit risk.
OTHER INVESTMENT INFORMATION
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.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes in response
to adverse market or other conditions, the Fund may make investments,
including short-term money market instruments or holding substantial cash
reserves, which are inconsistent with the Fund's primary investment
strategies. While the Fund is investing for temporary defensive purposes,
it may not meet its investment objectives.
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MANAGEMENT OF THE FUND
INVESTMENT ADVISER
The Fund's Adviser is Investors Management Group, Ltd. ("IMG"), 2203 Grand
Avenue, Des Moines, Iowa 50312. 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 December 31, 1999, IMG had approximately $1.4
billion in equity, fixed-income and money market assets under management.
IMG provides investment advisory services and order placement facilities
for the Fund. For these advisory services, the Fund has contracted to pay
IMG a fee of 0.35 percent as a percentage of average daily net assets of
the Fund. IMG has waived a portion of the fee for an actual fee of 0.25
percent. IMG may reduce or eliminate the fee waiver at any time.
PORTFOLIO MANAGERS
The following individuals serve as portfolio managers for the Fund and are
primarily responsible for the day-to-day management of the Fund's
portfolio:
Kathryn D. Beyer, CFA
- Managing Director
- Ms. Beyer is a fixed-income strategist and is a member of IMG's
Investment Policy Committee.
- She has been with IMG since 1993.
Jeffrey D. Lorenzen, CFA
- Managing Director
- Mr. Lorenzen is a fixed-income strategist, is a member of IMG's
Investment Policy Committee, and chairperson of the Bond Research
Committee.
- He has been with IMG since 1992.
Elizabeth S. Pierson, CFA
- Vice President and Senior Fixed-Income Manager.
- Ms. Pierson is a fixed-income strategist and is a member of IMG's
Investment Policy Committee.
- Ms. Pierson became an employee of IMG effective with the
acquisition of IMG by AMCORE Financial, Inc. in February 1998
and has been with IMG affiliates since 1984.
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PURCHASE AND SALE OF SHARES
HOW THE FUND VALUES ITS SHARES
The Fund's NAV is calculated at 11:00 a.m. Central Time each day the
Federal Reserve Bank ("Fed") or New York Stock Exchange ("Exchange") is
open for business.
To calculate NAV, the 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 Fund values its 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.
A purchase order for shares received in good order by the Fund by 11:00
a.m. Central Time is effected at the net asset value per share calculated
as of 11:00 a.m. Central Time, and investors will receive the dividend
declared that day, if the Custodian has received the purchase price in
federal funds or other immediately available funds by 3:00 p.m. Central
Time that day. A purchase order for shares received after 11:00 a.m.
Central Time and prior to 3:00 p.m. Central Time for which such funds have
been received by 3:00 p.m. Central Time will be effected as of 11:00 a.m.
Central Time the following business day, and will begin to accrue dividends
at that time. If federal funds are not available by 3:00 p.m. Central Time,
the order will be canceled. Payment for orders that are not accepted or are
canceled will be returned after prompt inquiry to the transmitting
organization.
HOW TO BUY SHARES
You may purchase the Fund's shares through qualified institutions. A
qualified institution is an institution that has a business relationship
with Union Bank and Trust Company, Lincoln, Nebraska ("Union Bank") and/or
its affiliates as determined by Union Bank in its sole discretion.
The minimum initial investment amount is $100,000.
To purchase shares of the 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.
2203 Grand Avenue
Des Moines, IA 50312
You may also purchase shares through the following wire purchase procedure:
Union Bank & Trust Company
Lincoln, Nebraska
Trust Department, ABA #104910785
Lincoln, Nebraska 68506
Account of Institutional Reserves Fund
FBO: (Account Registration Name)
An Account Application form can be obtained by calling the Fund at (800)
798-1819. 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) 798-1819 to arrange a transfer from
your bank account.
The Fund is required to withhold 31 percent of taxable dividends, capital
gains distributions, and redemptions paid to shareholders that 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 individual investors) on your Account Application.
The Fund may refuse any order to purchase shares. In particular, the Fund
reserves the right to restrict purchases of shares when they appear to
evidence a pattern of frequent purchases and sales made in response to
short-term conditions.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares back to the Fund) on
any day the Fed or 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 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.
2203 Grand Avenue
Des Moines, IA 50312
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 IMG.
BY TELEPHONE:
You may redeem your shares by telephone request unless you choose not to
have this option on the Account Application. Call the Fund at (800)
798-1819 with instructions on how you wish to receive your sale proceeds.
You may have the proceeds mailed to your address or sent electronically to
a bank account previously designated on your Account Application.
If you are unable to contact the Fund by telephone, you may also mail the
redemption request to the Fund at the above address.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables you, as a shareholder of the 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 it automatically deposited into
your bank account or a check in the amount specified mailed to you. In
order to participate:
- the required minimum withdrawal is $500; and
- the Fund must maintain a $10,000 minimum balance.
To participate in the Auto Withdrawal Plan, you should call (800) 798-1819
for more information.
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AUTOMATIC REDEMPTION
The Fund reserves the right to redeem, at NAV, the shares of any
shareholder if, because of redemptions of shares by or on behalf of the
shareholder, the account of such shareholder has a value of less than $500.
Before the Fund exercises its 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.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND CAPITAL GAINS
The Fund intends to declare net investment income daily as a dividend to
shareholders at the close of business on the day of declaration. The Fund
will generally pay such dividends monthly.
The 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 the 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
Fund at 2203 Grand Avenue, Des Moines, Iowa 50312 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
All shareholders are required to report the receipt of dividends and
distributions on their federal income tax returns.
Dividends paid out of the 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. Distributions of
net capital gains (the excess of net long-term capital gains over net
short-term capital losses), if any, designated by the Fund as capital gain
dividends are taxable as long-term capital gains, regardless of the length
of time the shareholder has held Fund shares.
A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by the Fund in October, November or
December of that year to shareholders of record on a date in such a month
and paid by the Fund during January of the following calendar year. Such
distributions will be treated as received by shareholders
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in the calendar year in which the distributions are declared, rather than
the calendar year in which the distributions are received.
Each year the Fund will notify shareholders of the tax status of dividends
and distributions.
Distributions from the Fund may be subject to state and local taxes.
Distributions of the Fund that are derived from interest on U.S. Government
securities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisors regarding the possible
exclusion for state and local income tax purposes of the portion of
dividends paid by the Fund which is attributable to interest from U.S.
Government securities and the particular tax consequences to them of an
investment in the Fund, including the application of state and local tax
laws.
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DISTRIBUTION ARRANGEMENTS
SHARE CLASSES
The Fund offers only one class of shares at present, although it has
authority to offer multiple classes in the future.
DISTRIBUTION
Shares of the Fund pay no shareholder or servicing fees and are normally
offered directly by the distributor or through qualified institutions.
RULE 12B-1 AND ADMINISTRATIVE SERVICE FEES
The Fund has adopted a plan under SEC Rule 12b-1 and an Administrative
Services Plan that allows the Fund to pay asset-based distribution and
service fees for the distribution and sale of its shares. The plans allow
charges of up to .50 percent but no fees are currently being imposed under
the plans.
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PART B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
Institutional Reserves Fund
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
May , 2000
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 Institutional Reserves Fund ("Institutional
Reserves"), 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 July 29, 1999, except for Institutional
Reserves, which is dated May ,2000 (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.
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,
Municipal Assets, and Institutional Reserves 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
APPENDIX C
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GENERAL INFORMATION
Vintage Mutual Funds, Inc. (the "Company") is an open-end management
investment company which currently offers it shares in series representing
eleven investment portfolios: Government Assets, Liquid Assets, Municipal
Assets, Institutional Reserves, 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, and Institutional Reserves 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
and Institutional Reserves 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.
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. Each Fund 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 Adviser 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 Adviser 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 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, Institutional Reserves, 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 Adviser determines that at
the time of investment the obligations are of comparable quality to the other
obligations in which the Fund may invest. The Adviser, 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, Municipal Assets, and Institutional Reserves
Funds, as well as the Variable NAV Funds may also invest 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.
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 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 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 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 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-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
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, Municipal Assets, and
Institutional Reserves Funds, may invest in the Government Assets, Liquid
Assets, Municipal Assets, and Institutional Reserves 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, Municipal Assets, and Institutional Reserves
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 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.
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.
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 Adviser's own credit analysis than in the case of a fund
investing in higher quality bonds. While the Adviser 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 Adviser'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.
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 Adviser 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 Adviser 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 Adviser 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.
The principal criteria which the Adviser 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 Adviser
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 an A1/P1 rating. The Adviser 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 Adviser 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 and Institutional Reserves Funds are
authorized to purchase Student Loan Trust Certificates ("Certificates") from one
or more Student Loan Trusts. The Funds will only purchase Certificates from
Student Loan Trusts formed for the purpose of purchasing federally insured
student loans. Student Loan Trusts are funded by the issuance and sale to the
Funds of Certificates which have an original maturity of no more than 397 days
and which may be redeemed by the Funds upon not more than five business days'
written notice to the issuing Student Loan Trust. The Funds are under no
obligation to purchase Certificates issued by any Student Loan Trust.
The Funds' election to purchase Certificates will be based upon the amount of
funds available for investment, the investment yield borne by the Certificates
compared with yields available on other short-term liquid investments and upon
the aggregate amount of Certificates owned by the Funds which may not exceed 80
percent of a Fund's assets. The yield to the Funds on 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 0.55 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 Funds.
In addition to student loan guarantees and interest subsidies by various federal
and state bodies (see Appendix C) the liquidity and value of the Certificates
are guaranteed by various financial institutions. These institutions (the
"guarantors") have agreed to purchase student loans or Certificates from the
Student Loan Trusts upon five days' written notice from the Student Loan Trust,
when called upon to do so by the Funds. Each guarantor must maintain a
short-term rating of the highest category from a NRSRO, and if the guarantor has
short-term ratings from more than one NRSRO, all ratings must be in the highest
category. See Appendix A for a description of securities ratings. Appendix C
contains a detailed summary of the Higher Education Act, the Student Loan Reform
Act of 1993 and other laws, regulations and programs describing the kinds of
loans that may be purchased by the Student Loan Trusts.
At December 31, 1999, assets of the Liquid Assets Fund included a Student Loan
Certificate in the amount of $5,000,000, which was equal to 3 percent of Fund
net assets. This Certificate has 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 Student Loan Trust. Proceeds from the issuance of Student Loan
Certificates have been used by the Student Loan Trust to purchase federally
insured student loans which are subject to agreements to purchase such loans
from the Student Loan Trust on not more than five business days' written notice.
In the event a guarantor was unable to honor its purchase commitment it would be
necessary for the Student Loan Trust to seek other purchasers of the loans.
Because such loans are federally insured and bear a variable interest rate the
Funds believe 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 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.
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 commitments of the issuers of such obligations) will be carefully
evaluated by the Adviser, 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, which may
not be changed without a shareholder vote. Under these restrictions a Fund may
not:
1. Underwrite securities issued by other persons, except to the extent
that a 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);
4. Borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for
temporary purposes in amounts up to 10% (25% for the Bond Fund) of the
value of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets, except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Fund's total assets at the
time of its borrowing. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of
its total assets are outstanding; and
5. Make loans, except that the Fund may purchase or hold debt securities,
lend portfolio securities in accordance with its investment objective
and policies, and may enter into repurchase agreements.
Each of the Limited Term Bond, Bond, Income, Municipal Bond, Balanced, Equity,
and Aggressive Growth Funds will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, with respect to 75% of its
portfolio, more than 5% of the value of the total assets of the Fund
would be invested in such issuer, or the Fund would hold more than 10%
of any class of securities of the issuer or more than 10% of the
outstanding voting securities of the issuer.
Each of the Limited Term Bond, Income, Balanced, Equity, and Aggressive Growth
Funds will not:
1. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a)there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b)wholly-owned finance companies will
be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c)utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
The Municipal Bond Fund will not:
1. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a)there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b)there is no limitation with respect
to Municipal Securities, which, for purposes of this limitation only,
do not include private activity bonds that are backed only by the
assets and revenues of a non-governmental user; (c)wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of their parents; and (d) utilities will be divided according to their
services. For example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry.
2. Write or sell puts, calls, straddles, spreads or combinations thereof
except that the Fund may acquire puts with respect to Municipal
Obligations in its portfolio and sell those puts in conjunction with a
sale of those Municipal Obligations.
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, or concentrate its
investments in anyone industry.
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 and the Institutional Reserves Funds have also adopted the
following fundamental investment restrictions. The Liquid Assets and
Institutional Reserves Funds may not:
1. Invest more than 80 percent of its total assets in (a) as to
Liquid Assets, loans and/or loan participations purchased from
Participating Banks, Student Loan Certificates and/or FmHA
Certificates; and (b) as to Institutional Reserves, Student Loan
Certificates;
2. Pursuant to Rule 2a-7 invest more than 25 percent of its total
assets in loan participations purchased from, loans backed by
letters of credit issued by, or Student Loan Certificates
guaranteed 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 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 Adviser
or by directors and officers of the Fund or the Adviser, or if any
director or officer of the Fund or the Adviser 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;
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 Adviser
or by directors and officers of the Fund or the Adviser, or if any
director or officer of the Fund or the Adviser owns more than 1/2
percent of the voting securities of such Participating Bank.
14. Issue senior securities or concentrate its investments in any one
industry.
The following additional investment restrictions are not fundamental and may be
changed with respect to a particular Fund without the vote of amajority 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
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, Municipal Assets, and
Institutional Reserves 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, Municipal Assets, and Institutional Reserves 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, Municipal Assets,
Institutional Reserves Funds
The Government Assets, Liquid Assets, Municipal Assets, Institutional Reserves
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 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
these Funds would receive if they sold the instrument. The value of securities
in these 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, Municipal Assets,
and Institutional Reserves 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
and Institutional Reserves Funds' 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 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, in accordance
with procedures established by the Distributor, through 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. Share of Institutional
Reserves may be purchased only by financial institutions which have a business
relationship with Union Bank and Trust company, Lincoln, Nebraska ("Union Bank")
and/or its affiliates, as determined by Union Bank in its sole discretion.
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, Municipal Assets, and Institutional Reserves
Funds are purchased at the next determined net asset value per share (see "NET
ASSET VALUE"). An order to purchase shares of any of these Funds 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, Municipal
Assets, or Institutional Reserves 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, Municipal Assets, and Institutional
Reserves 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, Municipal Assets, or Institutional Reserves
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, Municipal Assets, and
Institutional Reserves 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.
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 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 Adviser 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 Assets, Municipal Assets, or Institutional Reserves 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.
<PAGE>
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.
Patricia M. Bonavia, age 49, Vice President
President, AMCORE Investment Services, Inc.
Karen Branding, age 39, Director
Chairman, President & CEO, Busch Creative Services Corporation, a
marketing and creative services subsidiary of Anheuser-Busch.
Mary Dotterer, age 37, Secretary
Compliance Officer, Investors Management Group from June, 1999 to
present; Staff Accountant, Securities and Exchange Commission,
from 1997-1999; Investigator, Federal Deposit Insurance
Corporation, from 1990-1996.
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.
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
President & CEO, Voyageur Asset Management LLC, from 1991 to present.
President, CEO and Director, Dougherty Summit Securities LLC, from
1997 to 2000.
Steven Zumbach, age 49, Chairman and Director
Attorney at Belin, Lamson, Zumbach, Flynn Law Firm.
The address for Mr. Miles, Mr. McClurg, Mr. Evans, Ms. Mitchell, and Ms.
Dotterer 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 Adviser 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 Adviser 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
Name of Person Position Aggregate Compensation
From Registrant
Karen Branding Director $8,750
Annalu Farber Director $8,750
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
Investment Adviser
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 adviser for the
Vintage Mutual Funds.
Under the Investment Advisory Agreement, the Adviser 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 0.40% for the Government Assets Fund,
of 0.35% for the Liquid Assets, Municipal Assets, and Institutional Reserves
Funds, of 0.50% for the Limited Term Bond, of 0.55% for the Bond Fund, of 0.60%
for the Income Fund, of 0.50% 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:
<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
The total investment advisory fees waived for the Funds referenced below for the
fiscal year ended March 31, 1999:
Government Assets Fund $52,738
Municipal Bond Fund $51,228
The total investment advisory fees paid for the funds referenced below for the
fiscal year ended March 31, 1998, are as follows:
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
The total investment advisory fees paid by the respective Funds for the period
from July 1, 1997, to March 31, 1998, are as follows:
Liquid Assets Fund $181,329
Municipal Assets Fund $ 62,948
The total investment advisory fees paid by the Bond Fund for the period from May
1, 1997, to March 31, 1998, are $21,275.
The total investment advisory fees earned by the previous adviser, 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:
PREDECESSOR FUNDS
For Fiscal Years Ended March 31 1996 1997
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
The total investment advisory fees waived or assumed by the previous adviser,
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:
PREDECESSOR FUND
For Fiscal Years Ended March 31 1996 1997
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
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:
PREDECESSOR FUND
For Fiscal Years Ended June 30 1996 1997
Liquid Assets Fund $444,793 $428,125
Municipal Assets Fund $ 43,217 $ 51,871
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:
PREDECESSOR FUND
For Fiscal Years Ended June 30 1996 1997
Liquid Assets Fund $0 $0
Municipal Assets Fund $0 $31,087 $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:
PREDECESSOR FUND
For Fiscal Years Ended April 30 1996 1997
IMG Bond Fund 1 $15,625 $23,870
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.
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:
Balanced Fund $ 47,689
Equity Fund $540,289
Aggressive Growth Fund $136,494
Total brokerage commissions paid by the respective Funds for the fiscal year
ended March 31, 1998, are as follows:
Balanced Fund $ 46,209
Equity Fund $485,253
Aggressive Growth Fund $123,967
Total brokerage commissions paid for the fiscal years ended March 31, 1996 and
March 31, 1997, by the respective predecessor Funds are as follows:
PREDECESSOR FUND
For Fiscal Years Ended March 31 1996 1997
AMCORE Vintage Balanced Fund $ 9,625 $ 28,496
AMCORE Vintage Equity Fund $214,078 $290,166
AMCORE Vintage Aggressive Growth Fund $ 28,295 $ 83,370
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 the 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 Adviser 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 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 Government
Assets, Liquid Assets, Municipal Assets, and Institutional Reserves 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.
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 Adviser 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. (Correct for IRF?)
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
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 shares of Institutional Reserves, "S" shares of Equity,
Government Assets, 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 Adviser 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.
Custodian
Union Bank and Trust Company serves as custodian for Institutional Reserves and
Bankers Trust Company, New York, New York, serves as custodian for the other
Funds (together, the "Custodian") 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, "S" and "I" shares of the Municipal Assets Fund, and all shares of
the Institutional Reserves 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 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
PricewaterhouseCoopers, LLP 1177 Avenue of the Americas, New York, New York
10036, has been selected as independent auditors for the Company for the fiscal
year ended March 31, 2000. PricewaterhouseCoopers, 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 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. (Do we need to
discuss the eligible purchases of Institutional Reserves here?)
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. The Liquid Assets Fund,
Municipal Assets Fund and Government Assets Fund
offer Class S shares while only the Liquid Assets
Fund offers Class S2 shares.
"S" Shares of the Equity These shares are offered to all shareholders,
Fund except those who qualify for "T" shares of the
Equity Fund.
"T" Shares of the Equity These shares are offered solely to fiduciary
Fund accounts of AMCORE Investment Group, N.A. over
which AMCORE Investment Group, N.A. exercises
investment discretion.
"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.
"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.
Shares are normally 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. Shares of Institutional Reserves are
offered only to financial institutions which have a business relationship with
Union Bank, and/or its affiliates.
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.
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.
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, Municipal
Assets, and Institutional Reserves Funds
The "current yield' of the Government Assets, Liquid Assets, Municipal Assets,
and Institutional Reserves 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
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 on the next page.
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%
The Institutional Reserves Fund has just commenced business and, accordingly, no
yield information is available.
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)exp(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.
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 Adviser 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.
<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 = [(------)exp (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 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.
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%
<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.
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.
<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 Portfolio Investments, March 31, 1999;
2. Statements of Assets and Liabilities, March 31, 1999;
3. Statements of Operations for Year Ended March 31, 1999;
4. Statements of Changes in Net Assets for the Years Ended March 31, 1999 and
March 31, 1998;
5. Notes to Financial Statements; and 6. Independent Auditors' Report dated
April 30, 1999.
<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 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.
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).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
"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.
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.
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 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.
<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>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marginal The following TAX-EXEMPT INTEREST
TAXABLE INCOME* Single Income 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
Joint Return Return Tax
Bracket Equal the TAXABLE INTEREST RATES shown below:
$6,450-$46,750 $2,650-$26,900 15.0% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$46,750-$96,450 $26,900-$57,450 28.0% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
$96,450- $160,350 $57,450- 129,650 31.0% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
$160,350-$282,850 $129,650-$280,000 6.0% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16%
Over $282,850 Over $280,000 39.6% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
Maximum Corporate Rate 34.0% 5.30% 6.06% 6.82% 7.58% 8.33% 9.09% 9.85%
* 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.
</TABLE>
<PAGE>
APPENDIX C
DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM
The Federal Family Education Loan Program
The Higher Education Act provides for a program of (a) direct federal
insurance of student loans ("FISLP") and (b) reinsurance of student loans
guaranteed or insured by a state agency or private non-profit corporation
(collectively, "Federal Family Education Loans" and the "Federal Family
Education Loan Program"). Several types of loans are currently authorized as
Federal Family Education Loans pursuant to the Federal Family Education Loan
Program. These include:(a) loans to students with respect to which the federal
government makes interest payments available to reduce student interest cost
during periods of enrollment ("Subsidized Federal Stafford Loans"); (b) loans to
students with respect to which the federal government does not make such
interest payments ("Unsubsidized Federal Stafford Loans" and, collectively with
Subsidized Federal Stafford Loans, "Federal Stafford Loans"); (c) supplemental
loans to parents of dependent students ("Federal PLUS Loans"); and (d) loans to
fund payment and consolidation of certain of the borrower's obligations
("Federal Consolidation Loans"). Prior to July 1, 1994, the Federal Family
Education Loan Program also included a separate type of loan to graduate and
professional students and independent undergraduate students and, under certain
circumstances, dependent undergraduate students, to supplement their Stafford
Loans ("Federal Supplemental Loans for Students" or "Federal SLS Loans").
This summary of the Federal Family Education Loan Program as
established by the Higher Education Act does not purport to be comprehensive or
definitive and is qualified in its entirety by reference to the text of the
Higher Education Act and the regulations thereunder. Certain of the provisions
of the Federal Family Education Loan Program described below have been
subsequently modified by legislation signed by President Clinton on August 10,
1993 and December 20, 1993. See "--1993 Amendments to the Federal Family
Education Loan Program" and "-Subsidized Federal Stafford Loans--Principal and
Interest" below.
Subsidized Federal Stafford Loans
The Higher Education Act provides for federal (a) insurance or
reinsurance of eligible Subsidized Federal Stafford Loans, (b) interest subsidy
payments to eligible lenders with respect to certain eligible Subsidized Federal
Stafford Loans, and (c) special allowance payments representing an additional
subsidy paid by the Secretary of Education to such holders of eligible
Subsidized Federal Stafford Loans.
Subsidized Federal Stafford Loans are eligible for reinsurance under
the Higher Education Act if the eligible student to whom the loan is made has
been accepted or is enrolled in good standing at an eligible institution of
higher education or vocational school and is carrying at least one-half the
normal full-time workload at that institution. In connection with eligible
Subsidized Federa1 Stafford Loans there are limits as to the maximum amount
which may be borrowed for in academic year and in the aggregate for both
undergraduate and graduate/professional study. Both aggregate limitations
exclude loans made under the Federal SLS and Federal PLUS Programs. The
Secretary of Education has discretion to raise these limits to accommodate
students undertaking specialized training requiring exceptionally high costs of
education.
Subject to these limits, Subsidized Federal Stafford Loans are
available to borrowers in amounts not exceeding their unmet need for financing
as provided in the higher Education Act. Provisions addressing the
implementation of needs analysis and the relationship between unmet need for
financing and the availability of Subsidized Federal Stafford Loan Program
funding have been the subject of frequent and extensive amendment in recent
years. There can be no assurance that further amendment to such provisions will
not materially affect the availability of Subsidized Federal Stafford Loan
funding to borrowers or the availability of Subsidized Federal Stafford Loans
for secondary market acquisition.
Qualified Student. Generally, a loan may be made only to a United
States citizen or national or otherwise eligible individual under federal
regulations who (a) has been accepted for enrollment or is enrolled and is
maintaining satisfactory progress at an eligible institution, (b) is carrying at
least one-half of the normal full-time academic workload for the course of study
the student is pursuing, as determined by such institution, (c) has agreed to
notify promptly the holder of the loan of any address change, and (d) meets the
applicable "needs" requirements. Eligible institutions include higher
educational institutions and vocational schools that comply with certain federal
regulations. Each loan is to be evidenced by an unsecured note.
Principal and Interest. Subsidized Federal Stafford Loans may bear
interest at a rate not in excess of 7% per annum if made to a borrower to cover
costs of instruction for any period beginning prior to January 1, 1981 or,
subsequent to such date, if made to a borrower who, upon entering into a note
for a loan, has outstanding student loans under the Federal Family Education
Loan Program for which the interest rates do not exceed 7%. Subsidized Federal
Stafford Loans made to new borrowers for periods of instruction between January
1, 1981 and July 13, 1983 bear interest at a rate of 9% per annum and for
periods of instruction beginning on or after July 13, 1983 the rate for new
borrowers is 8% per annum. Further, loans to first-time borrowers for periods of
enrollment beginning on or after July 1, 1988, made pursuant to Section 427A of
the Higher Education Act ("427A Loans"), bear interest at rates of 8% per annum
from disbursement through four years after repayment commences and 10% per annum
thereafter, subject to a provision (the so-called "rebate") requiring annual
discharge of principal to the extent, in excess of $50, that the sum of
quarterly calculations of the amount by which interest calculated at the rate of
10% per annum exceeds the amount which would result from application of a rate
equivalent to the annual average T-bill rate plus 3.25%. For new loans made to
all existing borrowers after July 23, 1992 and for loans made to all new
borrowers after July 23, 1992 but prior to October 1, 1992, the provision that
requires annual rebate is effective immediately, the rate with which the
quarterly calculation of interest is compared is equivalent to the annual
average 91-day Treasury bill bond equivalent rate plus 3.10%, and any rebate
with respect to a loan for a period during which the Secretary of Education is
making interest subsidy payments must be credited to the Secretary of Education.
The Higher Education Technical Amendments of 1993, enacted December 20,
1993 (P.L. 103-208) (the "1993 Technical Amendments") changed the excess
interest rebate provisions of the Higher Education Act applicable to the Federal
Stafford Loans described in the preceding paragraph which were previously
subject to such rebate requirements. Holders of all such loans previously
subject to rebates were required to convert the fixed rates on such loans to
annual variable rates by January 1, 1995 in most cases (loans with an initial
rate of 8% which increase to 10% after four years of repayment ("8/10% loans")
must convert by January 1, 1995 or the date of increase to 10%, whichever is
later). The converted loans will not thereafter be subject to the rebate
requirements. At the time of conversion the holder of the loan also must
retroactively convert the fixed interest rate for periods prior to the
conversion to a quarterly variable rate. In all cases the new variable rate
cannot exceed the originally stated fixed rate. The new annual variable rate for
8/10% loans made prior to July 23, 1992 and to new borrowers between July23,
1992 and October 1, 1992 are the bond equivalent rate of the 91-day Treasury
bills auctioned at the final auction prior to each June 1, plus 3.25%. The
annual variable rate for 8/10% loans and other fixed rate loans made to existing
borrowers between July 23, 1992 and October 1, 1992 are the bond equivalent rate
of the 91-day Treasury bills auctioned at the final auction prior to each June
1, plus 3.10%. The retroactive quarterly variable rates for periods prior to
conversion is the average of the bond equivalent rates of the 91-day Treasury
bills auctioned for the preceding three months plus 3.25% (in the case of 8/10%
loans described in the second preceding sentence) or 3.10% (in the case of loans
described in the preceding sentence).
Subsidized Federal Stafford Loans initially disbursed on or after
October 1, 1992 to new borrowers as of that date, and subsequent loans to such
borrowers, bear a variable rate of interest, subject to annual reset. The
effective interest rate thereon would equal 3.10% over the average of the bond
equivalent rate of 91-day Treasury bills auctioned during a particular fiscal
year not to exceed 9%. The 1993 Amendments (as described below) made certain
changes to the interest rates on student loans to be originated in the future.
The interest rates on Subsidized Federal Stafford Loans made to new borrowers as
of July 1, 1994 will be the 91-day T-bill rate plus 3.1%, not to exceed 8.25%.
The interest rates on these programs for loans made on or after July 1, 1995
prior to repayment and during any grace period will be the 91-day T-bill plus
2.5%, not to exceed 8.25%. The interest rate on Subsidized Federal Stafford
Loans and Unsubsidized Federal Stafford Loans made to new borrowers on or after
July 1, 1998, will be the bond equivalent rate of the U.S. Treasury security
with a comparable maturity as established by the Secretary of Education plus 1%,
not to exceed 8.25%.
The Higher Education Act requires that loans in excess of$1 ,000 made
to cover enrollment periods longer than six months be disbursed by eligible
lenders in at least two separate disbursements. Prior to January 1, 1987, the
maximum amount of the loan for an academic year could not exceed $2,500 for
undergraduate study and $5,000 for graduate or professional study, subject to an
aggregate limit of $12,500 for undergraduate study and up to $25,000 for
graduate and professional study, inclusive of loans for undergraduate study.
Since January 1, 1987, Undergraduates have been able to borrow up to $2,625
annually through the completion of the second year of instruction and $4,000
annually through the remainder of undergraduate study. Subsidized Federal
Stafford Loans are subject to an aggregate limit of $17,250 for undergraduate
Study, while graduate or professional students, who may borrow up to $7,500
annually, are subject to an aggregate limit of $54,750, inclusive of loans for
undergraduate study. After July 1, 1993, the maximum amount of a Subsidized
Federal Stafford Loan for an academic year cannot exceed $2,625 for the first
year of undergraduate study, $3,500 for the second year of undergraduate study
and $5,500 for the remainder of undergraduate study. The aggregate limit for
undergraduate study is $23,000. The maximum amount of the loans for an academic
year for graduate students is $8,500. In either case, the Secretary of Education
has discretion to raise these limits by regulation to accommodate highly
specialized or exceptionally expensive courses of study.
Repayment. Repayment of principal on a Subsidized Federal Stafford Loan
does not commence while a student remains a qualified student, but generally
begins upon expiration of the applicable Grace Period, as described below. Such
Grace Periods may be waived by borrowers. In general, each loan must be
scheduled for repayment over a period of not more than ten years after the
commencement of repayment. The Higher Education Act currently requires minimum
annual payments of $600, including principal and interest, unless the borrower
and the lender agree to lesser payments; in instances in which a borrower and
spouse both have such loans outstanding, the total combined payments for such a
couple may not be less than $600 per year.
Grace Period, Deferment Periods, Forbearance. Repayment of principal of
a Subsidized Federal Stafford Loan must generally commence following a period of
(a) not less than 9 months or more than 12 months (with respect to loans for
which the applicable interest rate is 7% per annum) and (b) not more than 6
months (with respect to loans for which the applicable interest rate is 9% per
annum or 8% per annum and for loans to first time borrowers on or after July 1,
1988) after the student borrower ceases to pursue at least a half-time course of
study (a "Grace Period"). However, during certain other periods and subject to
certain conditions, no principal repayments need be made, including periods when
the borrower has returned to an eligible educational institution on a half-time
basis or is pursuing studies pursuant to an approved graduate fellowship
program, is a member of the Armed Forces or a volunteer under the Peace Corps
Act or the Domestic Volunteer Service Act of 1973, or is temporarily totally
disabled or is unable to secure employment by reason of the care required by a
dependent who is so disabled ("Deferment Periods"). Other Deferment Periods
include periods of unemployment and qualified internships. The lender may also
allow periods of forbearance during which the borrower may defer principal
payments because of temporary financial hardship.
Interest Subsidy Payments. The Secretary of Education pays interest on
Subsidized Federal Stafford Loans while the student is a qualified student,
during a Grace Period or during certain Deferment Periods. The Secretary of
Education makes interest subsidy payments to the owner of Subsidized Federal
Stafford Loans in the amount of interest accruing on the unpaid balance thereof
prior to the commencement of repayment or during any Deferment Period. The
Higher Education Act provides that the owner of an eligible Subsidized Federal
Stafford Loan shall be deemed to have a contractual right against the United
States to receive interest subsidy payments in accordance with its provisions.
Unsubsidized Federal Stafford Loans
The 1992 Amendments (defined below) created the Unsubsidized Federal
Stafford Loan Program designed for students who do not qualify for Subsidized
Federal Stafford Loans due to parental and/or student income and assets in
excess of permitted amounts. In other respects, the general requirements for
Unsubsidized Federal Stafford Loans are essentially the same as those for
Subsidized Federal Stafford Loans. The interest rate, the annual loan limits and
the special allowance payment provisions of the Unsubsidized Federal Stafford
Loans are the same as the Subsidized Federal Stafford Loans. However, the terms
of the Unsubsidized Federal Stafford Loans differ materially from Subsidized
Federal Stafford Loans in that the federal government will not make interest
subsidy payments and the loan limitations are determined without respect to the
expected family contribution. The borrower will be required to pay interest from
the time such loan is disbursed or capitalize the interest until repayment
begins. The authority for offering Unsubsidized Federal Stafford Loans became
effective for periods of enrollment beginning on or after October 1, 1992.
The 1993 Amendments made certain changes to the interest rates on
student loans to be originated in the future. The interest rates on Unsubsidized
Federal Stafford Loans made to new borrowers as of July 1, 1994 are the 91-day
T-bill rate plus 3.10%, not to exceed 8.25%. The interest rates on these
programs for loans made on or after July 1, 1995 prior to repayment and during
any grace period are the 91-day T-bill rate plus 2.50%, not to exceed 8.25%. The
interest rate on Unsubsidized Federal Stafford Loans made on or after July 1,
1998 will be the bond equivalent rate of the security with a comparable maturity
as established by the Secretary of Education plus 1.0%, not to exceed 8.25%.
Special Allowance Payments
The Higher Education Act provides for special allowance payments to be
made by the Secretary of Education to eligible lenders. The rates for special
allowance payments are based on formulas that differ according to the type of
loan (Federal Stafford or Federal PLUS and Federal SLS), the date the loan was
originally made or insured and the type of funds used to finance such loan
(tax-exempt or taxable). The effective formulas for special allowance payment
rates for Subsidized Federal Stafford Loans to borrowers whose first loans were
disbursed prior to July 23, 1992 and were acquired or originated with the
proceeds of tax-exempt obligations are set forth in the following table. This
formula has been changed by the 1993 Amendments, as hereinafter described, for
loans acquired or funded with proceeds of tax-exempt obligations originally
issued after September 30, 1993.
Annualized SAP Rate/ Annualized SAP Rate/
Interest Pre-October 1980 Post-October 1980
Rate on Loan Loans(1) Tax-Exempt Loans(1)
7% T-Bill - 3.5% (T-Bill-3.5%)/2: minimum 2.5%
8% T-Bill - 4.5% (T-Bill-4.5%)/2: minimum 1.5%
9% T-Bill-5.5% (T-Bill-5.50%)/2:minimum 0.5%
As noted in the foregoing table, there are minimum special allowance
payment rates for Subsidized Federal Stafford Loans acquired with proceeds of
tax-exempt obligations made on and after October 1, 1980, except for 427A Loans
(while bearing interest at 10%), which rates effectively ensure an overall
minimum return of 9.5% on such Subsidized Federal Stafford Loans. However, loans
acquired with the proceeds of tax-exempt obligations originally issued after
September 30, 1993 will no longer be assured of a minimum special allowance
payment. In addition, the formula will be the same as for loans acquired with
taxable proceeds (i.e., the full rather than half, special allowance payment
rate). The formula for special allowance payment rates for Federal PLUS and
Federal SLS Loans is similar to that for the Subsidized Federal Stafford Loans
except that no such payments are made until the rate on the Federal PLUS or
Federal SLS Loan exceeds a certain rate per annum according to the type of loan
and based on when the loan was first disbursed. In order to be eligible for
special allowance payments, the rate on PLUS Loans first disbursed on or after
October 1, 1992 must exceed 10% and for SLS Loans first disbursed on or after
October 1, 1992 the rate must exceed 11%. The rate of special allowance payments
for Subsidized Federal Stafford Loans first disbursed on or after October 1,
1992 is based on the bond equivalent 91-day Treasury bill rate plus 3.1%. The
special allowance payment rates applicable to Federal Consolidation Loans are
determined in the same manner as Subsidized Federal Stafford Loans made on or
after October 1, 1980.
Federal PLUS and Federal SLS Loan Programs
The Higher Education Act authorizes Federal PLUS Loans to be made to
parents of eligible dependent students and Federal SLS Loans to be made to
certain categories of students. Only parents who do not have an adverse credit
history are eligible for Federal PLUS Loans that have a first disbursement date
on or after July 1, 1993. The basic provisions applicable to Federal PLUS and
Federal SLS Loans are similar to those of Subsidized Federal Stafford Loans with
respect to the involvement of guarantee agencies and the Secretary of Education
in providing federal reinsurance on the loans. However, Federal PLUS and Federal
SLS Loans differ significantly from Subsidized Federal Stafford Loans,
particularly because federal interest subsidy payments are not available under
the Federal PLUS and Federal SLS Programs and special allowance payments are
more restricted.
Federal SLS Loan limits for loans disbursed on or after July 1, 1993
are dependent on the class year of the student and the length of the academic
year. The annual loan limit for Federal SLS Loans first disbursed on or after
July 1, 1993 ranges from $4,000 for first and second year undergraduate
borrowers to $10,000 for graduate borrowers, with a maximum aggregate amount of
$23,000 for undergraduate borrowers and $73,000 for graduate and professional
borrowers. The only limit on the annual and aggregate amounts of Federal PLUS
Loans first disbursed on or after July 1, 1993 is the student?s unmet financial
need. Federal PLUS and Federal SLS Loans disbursed prior to July 1, 1993 are
limited to $4,000 per academic year with a maximum aggregate amount of $20,000.
Prior to October 17, 1986, the applicable loan limits were $3,000 per academic
year with a maximum aggregate amount of $15,000. Federal PLUS and Federal SLS
Loans are also limited, generally, to the cost of attendance minus other
financial aid for which the student is eligible.
The applicable interest rate depends upon the date of issuance of the
loan and the period of enrollment for which the loan is to apply. For Federal
PLUS Loans issued on or after October 1, 1981, but for periods of educational
enrollment beginning prior to July 1, 1987, the applicable rate of interest is
either 12% or 14% per annum. A variable interest rate applies to Federal PLUS
and Federal SLS Loans made and disbursed on or after July 1, 1987 but prior to
October 1, 1992. The rate is determined on the basis of any 12-month period
beginning on July 1 and ending on the following June 30, such that the rate
shall be the bond equivalent rate of 52-week Treasury bills auctioned at the
final auction held prior to the June 1 preceding the applicable 12-month period,
plus 3.25%, with a maximum rate of 12% per annum. Special allowance payments are
available on variable rate Federal PLUS and Federal SLS Loans disbursed on or
after July 1, 1987 but prior to October 1, 1992 only if the rate determined by
the formula above would exceed 12%. The variable interest rate for Federal PLUS
and Federal SLS Loans first disbursed on or after October 1, 1992 is based on
the same 12-month period as Federal PLUS and Federal SLS Loans disbursed prior
to October 1, 1992, except that 3.10% shall be added to the bond equivalent rate
of 52-week Treasury bills auctioned prior to the applicable period, with a
maximum rate of 11% per annum for Federal SLS Loans, and a maximum rate of 10%
per annum for Federal PLUS Loans. Special allowance payments are available on
variable rate Federal SLS and Federal PLUS Loans disbursed on or after October
1, 1992 only if the rate determined by the formula in the preceding sentence
exceeds 11% per annum for Federal SLS Loans and 10% for Federal PLUS Loans.
The 1993 Amendments made certain changes to the interest rates on
student loans to be originated in the future. The interest rate on the Federal
PLUS Loans made on or after July 1, 1994 shall be the 52-week T-bill rate plus
3.10%, not to exceed 9%. Federal PLUS Loans made on or after July 1, 1998 shall
have an interest rate of the bond equivalent rate of the security with a
comparable maturity as established by the Secretary of Education, plus 2.10%,
not to exceed 9%.
The 1992 Amendments provide Federal SLS Loan borrowers the option to
defer commencement of repayment of principal until the commencement of repayment
of Federal Stafford Loans. Otherwise, repayment of principal of Federal PLUS and
Federal SLS Loans is required to commence no later than 60 days after the date
of disbursement of such loan, subject to certain deferral provisions. The
deferral provisions which apply are more limited than those which apply to
Stafford Loans. In addition, a parent borrower may defer principal payments for
periods during which the borrower has a dependent student for whom the parent
borrowed a Federal PLUS Loan, if such student is engaged in a qualifying
educational program, graduate fellowship program or rehabilitation training
program.
Repayment of interest, however, may be deferred only during certain
periods of educational enrollments specified under the Higher Education Act.
Further, whereas federal interest subsidy payments are not available for such
deferments, the Higher Education Act Provides an opportunity for the
capitalization of interest during such periods upon agreement of the lender and
borrower. Amounts borrowed to capitalize interest do not count against the
$4,000 annual loan limit.
A borrower may refinance all outstanding Federal PLUS Loans under a
single repayment schedule for principal and interest. The interest rate of such
refinanced loan shall be the weight average of the rates of all loans being
refinanced. A second type of refinancing enables an eligible lender to reissue a
Federal PLUS Loan which was initially originated at a fixed rate prior to July
1, 1987 in order to permit the borrower to obtain the variable interest rate
available on Federal PLUS Loans on and after July 1, 1987. If a lender is
unwilling to refinance the original Federal PLUS Loan, the borrower may obtain a
loan from another lender for the purpose of discharging the loan and obtaining a
variable interest rate.
Commencing July 1, 1994, the Federal SLS Loan Program has been replaced
by the Unsubsidized Stafford Loan Program with annual loan limits in the merged
program equal to the combined limits of the two programs prior to the merger.
The Federal Consolidation Loan Program
The Higher Education Act authorizes a program under which certain
borrowers may consolidate their various student loans into a single loan insured
and reinsured on a basis similar to Subsidized Federal Stafford Loans. Federal
Consolidation Loans may be made in an amount sufficient to pay outstanding
principal, unpaid interest and late charges on certain federally insured or
reinsured student loans incurred under and pursuant to the Federal Family
Education Loan Program (other than Federal PLUS Loans made to "parent
borrowers") selected by the borrower, as well as loans made pursuant to the
Perkins (formally "National Direct Student Loan") and Health Professional
Student Loan Programs. These loans, for applications received on or after
January 1, 1993, are available only to borrowers who have aggregate outstanding
student loan balances of at least $7,500, and for applications received before
January 1, 1993, are available only to borrowers who have aggregate outstanding
student loan balances of at least $5,000. The borrowers may be either in
repayment status or in a grace period preceding repayment and, for applications
received prior to January 1, 1993, the borrower must not be delinquent by more
than 90 days on any loan payment; for applications received on or after January
1, 1993 delinquent or defaulted borrowers are eligible to obtain Federal
Consolidation Loans if they agree to re-enter repayment through loan
consolidation. For applications received on or after January 1, 1993, borrowers
may add additional loans to a Federal Consolidation Loan during the 180-day
period following origination of the Federal Consolidation Loan. Further, a
married couple whose application is received on or after January 1, 1993 and who
agree to be jointly and severally liable will be treated as one borrower for
purposes of loan consolidation eligibility. A Federal Consolidation Loan will be
federally insured or reinsured only if such loan is made in compliance with
requirements of the Higher Education Act.
Federal Consolidation Loans made prior to July 1, 1994 bear interest at
a rate which equals the weighted average of interest rates on the unpaid
principal balance of outstanding loan rounded to the nearest whole percent, with
a minimum rate of 9%. Interest on Federal Consolidation Loans accrues and, for
applications received prior to January 1, 1993, is to be paid without deferral.
Borrowers may defer periodic payments of principal under certain circumstances
that are more limited than those applicable to the loans being refinanced.
Deferral of principal repayments is authorized for periods similar to those for
Subsidized Federal Stafford Loans. Borrowers may elect to accelerate principal
payments without penalty. The rate for special allowance payments for Federal
Consolidation Loans financed with tax-exempt funds is determined in the same
manner as for Subsidized Federal Stafford Loans made on or after October 1,
1980. See "--Special Allowance Payments" above. Further, no insurance premium
may be charged to a borrower and no insurance premium may be charged by a lender
in connection with a Federal Consolidation Loan. However, a fee may be charged
to a lender by the guarantor to cover the costs of increased or extended
liability with respect to a Federal Consolidation Loan.
Repayment of Federal Consolidation Loans begins 60 days after discharge
of all prior loans which are consolidated. Federal interest subsidy payments
generally are not available with respect to Federal Consolidation Loans.
Repayment schedules include, for applications received on or after January 1,
1993, the establishment of graduated and income sensitive repayment plans,
subject to certain limits applicable to the sum of the Federal Consolidation
Loan and the amount of the borrower?s other eligible student loans outstanding.
The lender may at its option include such graduated and income sensitive
repayment plans for applications received prior to that date. Generally, the
repayment shall be made over periods no shorter than ten but not more than 25
years in length. For consolidation loans made after July 1, 1994, the maximum
maturity schedule is thirty years for Federal Consolidation Loans of $60,000 or
more.
Federal Insurance and
Reimbursement of Guarantee Agencies
A Federal Family Education Loan is considered to be in default for
purposes of the Higher Education Act when the borrower fails to make an
installment payment when due, or to comply with other terms of the loan, and if
the failure persists for 180 days in the case of a loan repayable in monthly
installments or for 240 days in the case of a loan repayable in less frequent
installments.
If the loan in default is covered by federal loan insurance in
accordance with the provisions of the Higher Education Act, the Secretary of
Education is to pay the holder the amount of the loss sustained thereby, upon
notice and determination of such amount, within 90 days of such notification
subject to reduction as described in the following paragraphs.
The Higher Education Act provides that, subject to compliance with such
Act, the full faith and credit of the United States is pledged to the payment of
insurance claims and such Act guarantees reimbursements are not subject to
reduction. It further provides that guarantee agencies shall be deemed to have a
contractual right against the United States to receive reimbursement in
accordance with its provisions. In addition, the 1992 Amendments provide that if
a guarantor is unable to meet its insurance obligations, holders of loans may
submit insurance claims directly to the Secretary until such time as the
obligations are transferred to a new guarantor capable of meeting such
obligations or until a successor guarantor assumes such obligations. Federal
reimbursement and insurance payments for defaulted loans are paid from the
Student Loan Insurance Fund established under the Higher Education Act. The
Secretary of Education is authorized, to the extent provided in advance by
appropriations acts, to issue obligations to the Secretary of the Treasury to
provide funds to make such federal payments.
Loans Initially Disbursed Prior to October 1, 1993. If the loan is
guaranteed by a guarantee agency, the eligible lender is reimbursed by the
guarantee agency for 100% of the unpaid principal balance of the loan plus
accrued unpaid interest on any loan defaulted 50 long as the eligible lender has
properly serviced such loan. Under the Higher Education Act, the Secretary of
Education enters into a guarantee agreement and an annually renewable
supplemental guarantee agreement with a guarantee agency which provides for
federal reimbursement for amounts paid to eligible lenders by the guarantor with
respect to defaulted loans.
Pursuant to such agreements, the Secretary of Education is to reimburse
a guarantee agency for 100% of the amounts expended in connection with a claim
resulting from the death, bankruptcy or total and permanent disability of a
borrower, the death of a student whose parent is the borrower of a Federal PLUS
Loan, or claims by borrowers who received loans on or after January 1, 1986 and
who are unable to complete the programs in which they are enrolled due to school
closure or borrowers whose borrowing eligibility was falsely certified by the
eligible institution. Such claims are not included in calculating a guarantor?s
claims rate experience for federal reimbursement purposes. The Secretary of
Education is also required to repay the unpaid balance of any loan if collection
is stayed under the Bankruptcy Code and is authorized to acquire the loans of
borrowers who are at high risk of default and who request an alternative
repayment option from the Secretary of Education. Further, the Secretary of
Education is to reimburse a guarantee agency for any amounts paid to satisfy
claims not resulting from death, bankruptcy, or disability subject to reduction
as described in the following paragraphs.
The amount of such insurance or reimbursement payment is subject to
reduction based upon the annual claim rate of the guarantee agency calculated to
equal the amount of federal reimbursement as a percentage of the original
principal amount of originated or guaranteed loans in repayment on the last day
of the prior fiscal year. The formula used for loans initially disbursed prior
to October 1, 1993 is summarized below:
Claims Rate Federal Payment
0% up to 5% 100%
5% up to 9% 100% of claims up to 5%;
90% of claims 5% and over
9% and over 100% of claims up to 5%;
90% of claims 5% and over, up to 9%;
80% of claims 9% and over
The claims experience is not accumulated from year to year, but is
determined solely on the basis of claims in any one federal fiscal year compared
with the original principal amount of loans in repayment at the beginning of
that year.
Loans Initially Disbursed on or After October 1, 1993. The 1993 Amendments
reduce the reimbursement amounts described above (effective for loans initially
disbursed on or after October 1, 1993) as follows: 100% reimbursement is reduced
to 98%, 90% reimbursement is reduced to 88%, and 80% reimbursement is reduced to
78%, subject to certain limited exceptions.
Reimbursement
The original principal amount of loans guaranteed by a guarantee agency
which are in repayment for purposes of computing reimbursement payments to a
guarantee agency means the original principal amount of all loans guaranteed by
a guarantee agency less: (a) guarantee payments on such loans, (b) the original
principal amount of such loans that have been fully repaid, and (c) the original
amount of such loans for which the first principal installment payment has not
become due. Guarantee agencies with default rates below 5% are required to pay
the Secretary of Education annual fees equivalent to 0.51% of new loans
guaranteed, while all other such agencies must pay a 0.5% fee.
In addition, the Secretary of Education may withhold reimbursement
payments if a guarantee agency makes a material misrepresentation or fails to
comply with the terms of its agreements with the Secretary of Education or
applicable federal law. A supplemental guarantee agreement is subject to annual
renegotiation and to termination for cause by the Secretary of Education. The
Issuer has no knowledge that any aforementioned supplemental guarantee agreement
will not be renegotiated on the same terms as are currently in effect.
Under the guarantee agreements and the supplemental guarantee
agreements, if a payment on a Federal Family Education Loan guaranteed by a
guarantee agency is received after reimbursement by the Secretary of Education,
the guarantee agency is entitled to receive an equitable share of the payment.
Any originator of any student loan guaranteed by a guarantee agency is
required to discount from the proceeds of the loan at the time of disbursement,
and pay to the guarantee agency, an insurance premium which may not exceed that
permitted under the Higher Education Act.
The Issuer (or any other holder of a loan) is required to exercise due
care and diligence in the servicing of the loan and to utilize practices which
are at least as extensive and forceful as those utilized by financial
institutions in the collection of other consumer loans. If a guarantee agency
has probable cause to believe that the holder has made misrepresentations or
failed to comply with the terms of its agreement for guarantee, the guarantee
agency may take reasonable action including withholding payments or requiring
reimbursement of funds. The guarantee agency may also terminate the agreement
for cause upon notice and hearing.
The Guarantee Agreement
Pursuant to most typical agreements for guarantee between a guarantee
agency and the originator of the loan, any eligible holder of a loan insured by
such a guarantee agency is entitled to reimbursement from such guarantee agency
of any proven loss incurred by the holder of the loan resulting from default,
death, permanent and total disability or bankruptcy of the student borrower at
the rate of 100% of such loss (or, subject to certain limitations, 98% for loans
in default made on or after October 1, 1993). Guarantee agencies generally deem
default to mean a student borrower's failure to make an installment payment when
due or to comply with other terms of a note or agreement under circumstances in
which the holder of the loan may reasonably conclude that the student borrower
no longer intends to honor the repayment obligation and for which the failure
persists for 180 days in the case of a loan payable in monthly installments or
for 240 days in the case of a loan payable in less frequent installments. When a
loan becomes from 60 to 90 days past due, the holder is required to request
preclaims assistance from the applicable guarantee agency in order to attempt to
cure the delinquency. When a loan becomes 150 days past due, the holder is
required to make a final demand for payment of the loan by the borrower and to
submit a claim for reimbursement to the applicable guarantee agency. The holder
is required to continue collection efforts until the loan is 180 days past due.
At the time of payment of insurance benefits, the holder must assign to the
applicable guarantee agency all rights accruing to the holder under the note
evidencing the loan. The Higher Education Act prohibits a guarantee agency from
filing a claim for reimbursement with respect to losses prior to 270 days after
the loan becomes delinquent with respect to any installment thereon.
If a student who has received any loan directly insured by the
Secretary of Education dies, becomes totally and permanently disabled or is
discharged in bankruptcy, the Secretary is required to discharge the borrower's
liability on the loan by repaying the amount owed.
Higher Education Amendments of 1992
The 1992 Amendments reauthorized the Higher Education Act and made
certain amendments thereto. The following text describes some of the amendments
to the Higher Education Act contained in the 1992 Amendments, but does not
purport to be a complete description of those amendments, to which reference is
made for full and complete statements of their respective provisions.
The 1992 Amendments adopted several provisions that affect loan terms,
which are described in part above. These include, among others, provisions to
grant new borrowers (with respect to loans for which the first disbursement is
on or after July 1, 1993) the right to receive income-sensitive repayment
schedules. In cases where the borrowers have indicated a willingness to pay, but
have demonstrated an inability to do so, the 1992 Amendments entitle them to
forbearance, on and after October 1, 1992. The 1992 Amendments also provide that
in-school interest and special allowance payments to lenders shall be made only
with respect to loans that have been consummated by the borrower.
In addition, the 1992 Amendments include provisions regarding the
relationship between the Secretary of Education and the various guarantee
agencies. These include, but are not limited to, a requirement that the
Secretary of Education promulgate regulations to standardize forms and practices
used by guarantee agencies; a requirement that the Secretary of Education work
with guarantee agencies to develop criteria regarding assignment of loans to the
Secretary of Education a requirement for annual submissions to, and evaluations
by, the Secretary of Education of financial information concerning each
guarantee agency; a provision for the establishment by the Secretary of
standards pursuant to which certain guarantee agencies would be required to
submit management plans to the Secretary of Education; a provision authorizing
the Secretary of Education to, among other things, revoke a guarantee agency's
reinsurance contract if it does not submit a satisfactory management plan or if
the Secretary of Education determines the guarantee agency to be financially
nonviable; and a provision that makes the Secretary of Education responsible for
the payment of obligations of insolvent guarantee agencies. The 1992 Amendments
also require that officers and employees of guarantee agencies and other
participants in the Higher Education Act's program (such as lenders, secondary
markets and servicers) report to the Secretary of Education regarding financial
interests they may have in other participants in the Higher Education Act's
program. The foregoing provisions of the 1992 Amendments were generally
effective on the date of enactment, July 23, 1992, subject to rulemaking
procedures.
The 1992 Amendments also established a direct lending demonstration
program which would not have involved banks, secondary markets, or guarantee
agencies. This program was to cover the period of July 1, 1994 through June 30,
1998. The direct loan demonstration program was to include educational
institutions which were representative of the Higher Education Act'\s program
participants and which were to be selected by the Secretary of Education first,
from among those institutions expressing an interest in participating and
second, from those institutions selected by the Secretary of Education as
necessary to complete the sample, with an opportunity for such institutions to
decline to participate. Selected institutions may be required to participate
either in the demonstration program or the Act's program, but not both.
Institutions comprising more than 15% of the annual loan volume of any one
guarantee agency will not be selected. The 1993 Amendments, described below,
made substantial revisions to the direct lending program established by the 1992
Amendments. Certain of the 1992 Amendments require promulgation of regulations
by the Secretary of Education.
1993 Amendments to the
Federal Family Education Loan Program
On August 10, 1993, President Clinton signed into law the Omnibus
Budget Reconciliation Act of 1993, including Title IV of the Omnibus Budget
Reconciliation Act of 1993 and the Student Loan Reform Act of 1993 (the "1993
Amendments"). The summary of the 1993 Amendments contained herein does not
purport to be complete or comprehensive.
The 1993 Amendments provided for substantial changes to the current
student loan programs under the Federal Family Education Loan Program (the "FFEL
Program") and the Federal Direct Loan Demonstration program of the Higher
Education Act. Except as stated herein and in the 1993 Amendments, these changes
were effective on the date of enactment of the 1993 Amendments into law.
Terms and Conditions. Several terms and conditions of the current FFEL Program
were changed as follows:
With respect to loans initially disbursed on or after October 1, 1993,
a lender is entitled to receive from a guarantor 98% (reduced from 100%) of the
unpaid principal of defaulted loans (except with respect to loans made by a
lender-of-last-resort).
The effective floor rate of return of 9.5% available to holders of
loans made or purchased with funds obtained by the holder from the issuance of
tax exempt obligations, were eliminated for such obligations which were issued
on or after October 1, 1993. The special allowance payments payable with respect
to eligible loans acquired or funded with the proceeds of tax-exempt obligations
issued after September 30, 1993 are the full special allowance payments paid to
other lenders.
With respect to loans initially disbursed on or after October 1, 1993,
the Secretary of Education is required to reduce the interest subsidy and any
special allowance payment to any holder of a loan by a loan fee equal to 0.50%
of the principal amount of the loan.
Each holder of a Federal Consolidation Loan for which the first
disbursement is made on or after October 1, 1993, shall pay to the Secretary of
Education a monthly rebate fee calculated on an annual basis equal to 1.05% of
the principal plus accrued unpaid interest on such loan.
Guarantee agency retention on collections was reduced to 27% from 30%.
A one-time lender-paid user fee of 0.5% on new loan volume has been imposed.
Guarantee agency reinsurance reimbursement will be reduced from 100% to 98% 90%
to 88% and 80% to 78% of the amount expended by it in the discharge of its
insurance obligation. Loans made under a lender-of-last-resort program and under
an agreement resulting from guarantee agency insolvency are exempt from these
reductions.
General. Under the Federal Direct Student Loan Program (the "FDSL
Program") established by the 1993 Amendments, a variety of student loans,
including loans for parents of students, may be obtained directly from the
student?s institution of higher education ("IHE") or through an alternative
originator designated by the Secretary of Education, without application to an
outside lender. Loans made under the FDSL Program are funded and owned by the
Secretary of Education. The FDSL Program will provide for a variety of repayment
plans from which borrowers may choose, including repayment plans based on
income.
Direct Loans. The 1993 Amendments provided that, unless otherwise
specified, loans made to borrowers under the FDSL Program have the same terms,
conditions, and are available in the same amounts as loans made to borrowers for
Subsidized Federal Stafford Loans, Federal PLUS Loans and Unsubsidized Federal
Stafford Loans. The FDSL Program loans are known respectively as Federal Direct
Stafford Loans, Federal Direct PLUS Loans and Federal Direct Unsubsidized
Stafford Loans.
Guarantee Agencies. The 1993 Amendments also provide that a guarantee
agency's assets are dedicated to the loan programs and may not be used for
unauthorized purposes. Thus, the 1993 Amendments add to the guarantee agency
reserve provisions in the Higher Education Act what the 1993 Amendments describe
as a "clarification" that, notwithstanding any other provision of law, the
reserve funds of the guarantee agencies, and any assets purchased with these
reserve funds, regardless of who holds or controls the reserves or assets, are
the property of the United States, to be used in the operation of the FFEL
Program or the FDSL Program. These reserve are required to be maintained by each
guarantee agency to pay program expenses and contingent liabilities, as
authorized by the Secretary of Education. The 1993 Amendments further provided
that the Secretary of Education is prohibited from requiring the return of all
of a guarantee agency's reserve funds unless the Secretary of Education
determines that the return of these funds is in the best interest of the
operation of the FFEL Program, or to ensure the proper maintenance of such
agency's funds or assets or the orderly termination of the guarantee agency's
operations and the liquidation of its assets. However, the Secretary of
Education is also authorized to direct a guarantee agency to: (a) return to the
Secretary of Education all or a portion of its reserve expenses and contingent
liabilities; (b) return to the Secretary of Education, or the guarantee agency
any funds or assets held by, or under the control of, any other entity, which
the Secretary of Education determines are necessary to pay the program expenses
and contingent liabilities of the agency, or which are required for the orderly
termination of the agency's operation and liquidation of its assets; and (c)
cease any activities involving expenditure, use or transfer of the guarantee
agency's reserve funds or assets which the Secretary of Education determines is
a misapplication, misuse or improper expenditure.
The 1993 Amendments gave the Secretary of Education increased
flexibility to terminate a guarantee agency's agreement by allowing the
Secretary of Education to terminate the agreement if the Secretary of Education
determines that termination is necessary, to protect the federal financial
interest, to ensure the continued availability of loans to student or parent
borrowers, or to ensure an orderly transition from the FFEL Program to the FDSL
Program.
The 1993 Amendments also expanded the Secretary of Education's
authorized functions when a guarantee agency's agreement is terminated. The
Secretary of Education is authorized to provide the guarantee agency with
additional advance funds with such restrictions on the use of such funds as is
determined appropriate by the Secretary of Education, in order to meet the
immediate cash needs of the guarantee agency, ensure the uninterrupted payment
of claims, or ensure that the guarantee agency will make loans as the
lender-of-last-resort. Finally, the 1993 Amendments authorized the Secretary of
Education to take whatever other action is necessary, to ensure an orderly
transition from the FFEL Program to the FDSL Program.
The 1993 Amendments provided that if the Secretary of Education has
terminated or is seeking to terminate a guarantee agency's agreement, or has
assumed a guarantee agency's functions, notwithstanding any other provision of
law: (a) no state court may issue an order affecting the Secretary of
Education's actions with respect to that guarantee agency; (b) any contract
entered into by the guarantee agency with respect to the administration of the
agency's reserve funds or assets acquired with reserve funds shall provide that
the contract is terminable by the Secretary of Education upon 30 days notice to
the contracting parties if the Secretary of Education determines that such
contract includes an imperinissible transfer of funds or assets or is
inconsistent with the terms or purposes of this law; and (c) no provision of
state law shall apply to the actions of the Secretary of Education in
terminating the operations of the guarantee agency. Finally, notwithstanding any
other provision of law, the 1993 Amendments provided that the Secretary of
Education's liability for any outstanding liabilities of a guarantee agency
(other than outstanding student loan guarantees under Part D of Title IV of the
Higher Education Act), the functions of which the Secretary of Education has
assumed, shall not exceed the fair market value of the reserves of the guarantee
agency, minus any necessary liquidation or other administrative costs.
Amendments to Terms of Federal Family Education Loan Program Loans. The
1993 Amendments also amended the terms of loans under the FFEL Program. The 1993
Amendments require that following a borrower's default, the Secretary of
Education shall require at least 10% of borrowers who have defaulted on loans
made under the FFEL Program and whose loan is assigned to the Secretary of
Education to repay that loan under an income contingent repayment plan, the
terms and conditions of which would be established by the Secretary of
Education, and would be the same as or similar to the income contingent
repayment plan authorized under the FDSL Program. These provisions of the 1993
Amendments are effective for loans for periods of instruction beginning on or
after July 1, 1994 or, in the case of Federal PLUS Loans, for loans made on or
after July 1, 1994.
Federal Family Education Loan Program Loan Consolidation. The 1993
Amendments alter the provisions for the Federal Consolidation Loan Program in
order to facilitate the expansion of the FDSL Program. The 1993 Amendments
define "eligible borrower" for loan consolidation in the FFEL Program to mean a
borrower who, at the time of application for a consolidation loan, is in
repayment status, or in a grace period preceding repayment, or is a delinquent
or defaulted borrower who will reenter repayment through loan consolidation.
In addition, the 1993 Amendments provided that any lender who wishes to
make consolidation loans must enter into an agreement with the Secretary of
Education that the lender shall offer an income-sensitive repayment schedule to
the borrower of any Federal Consolidation Loan made by the lender on or after
July 1, 1994. The Federal Consolidation Loan must also be evidenced by a note or
other written agreement which includes a provision stating that interest during
periods of authorized deferment shall accrue and be paid by the Secretary of
Education, in the case of consolidation of only Federal Stafford Loans for which
the borrower received an interest subsidy or by the borrower or capitalized in
the case of a Federal Consolidation Loan that consolidated loans other than the
Federal Stafford Loans. The interest rate on Federal Consolidation Loans made
before July 1, 1994, shall be the greater of the weighted average of the
interest rates on the consolidated loans, rounded to the nearest whole percent
or 9%. The interest rate of a Federal Consolidation Loan made on or after July
1, 1994 shall be the weighted average of the rates on the Federal Consolidation
Loans, rounded upward to the nearest whole percent.
The 1993 Amendments modified the terms of the Federal Consolidation
Loan Agreement to require a lender to offer income sensitive repayment terms for
a Federal Consolidation Loan made on or after July 1, 1994. In the event that a
borrower is unable to obtain a consolidation loan with income sensitive
repayment terms acceptable to the borrower from the holders of the borrower?s
outstanding loans (that are selected for consolidation), or from any other
eligible lender, including Sallie Mae, the 1993 Amendments authorize the
Secretary of Education to offer the borrower a direct consolidation loan with
income contingent terms under the Federal Direct Student Loan Program. Such
direct Federal Consolidation Loans shall be repaid either pursuant to income
contingent repayment or any other repayment provision under this section. If the
Secretary of Education determines that the Department of Education does not have
the necessary origination and servicing arrangements in place for such loans,
the Secretary of Education shall not offer such loans.
The 1993 Amendments repealed the Federal Supplemental Loans for
Students program, but the loan limits for Unsubsidized Federal Stafford Loans
were increased to include the amounts formerly disbursed under the Federal
Supplemental Loans for Students program. Further, a section was added that
provides that the amount of periodic payment and the repayment schedule for any
Unsubsidized Federal Stafford Loan shall be established by assuming an interest
rate equal to the applicable rate of interest at the time the repayment of the
loan principal commences. At the option of the lender, the note or other written
evidence of the loan may require that the amount of the periodic payment will be
adjusted annually or the period of repayment of principal will be lengthened or
shortened to reflect adjustments in interest rates. Finally, the 10 year
repayment period of these loans shall commence at the time the first payment of
principal is due from the borrower.
Interest Rates. The interest rates on Federal Stafford Loans and
Unsubsidized Federal Stafford Loans made to new borrowers as of July 1,1994 are
the 91-day T-b ill rate plus 3.1%, not to exceed 8.25%. The interest rates for
loans made on or after July 1, 1995 prior to repayment, during any grace period
or during deferment status, are the 91-day T-bill rate plus 2.5%, not to exceed
8.25%. The interest rate on Federal Stafford Loans and Unsubsidized Federal
Stafford Loans made on or after July 1, 1998 will be the bond equivalent rate of
the U.S. Treasury security with a comparable maturity as established by the
Secretary of Education plus 1.0%, not to exceed 8.25%. The interest rates on the
Federal PLUS Loans made on or after July 1, 1994 shall be the 52-week T-bill
plus 3.1%, not to exceed 9%. Federal PLUS Loans made after July 1, 1998 shall
have an interest rate of the bond equivalent rate of the security with a
comparable maturity as established by the Secretary of Education plus 2.1%, not
to exceed 9%.
- --------
1 "T-Bill," as used in this table, means the average 13-week Treasury bill rate
calculated as a "bond equivalent rate" in the manner applied by the Secretary of
Education as referred to in Section 438 of the Higher Education Act.
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
Exhibit No. Description
- ---------- -----------
(a)(1)* Articles of Incorporation, incorporated by reference to the
Fund's Registration Statement, filed December 14, 1994
(a)(2)* Articles Supplementary, incorporated by reference to Post-Effective
Amendment No. 9, filed January 6, 1998
(a)(3)* Articles of Amendment, incorporated by reference to Post-Effective
Amendment No. 10, filed February 25, 1998
(a)(4)** Articles Supplementary dated ,2000
(b)* Bylaws, incorporated by reference to the Fund's Registration
Statement, filed December 14, 1994
(c) Not applicable
(d)** Form of Investment Advisory Agreement
(e) Form of Distribution Agreement
(f) Not applicable
(g)(1)* Form of Custodial Agreement, incorporated by reference to
Post-Effective Amendment No. 7 filed November 7, 1997
(g)(2)* Form of Custodial Agreement, incorporated by reference to
Post-Effective Amendment No. 8 filed November 12, 1997
(g)(3)** Form of Custodial Agreement for Institutional Reserves Fund
(h)(1) Form of Transfer Agency Agreement
(h)(2) Form of Management and Administrative Agreement
(h)(3) Form of Fund Accounting Agreement
(h)(4) Form of Administrative Services Plan
(i)(1)* Opinion of Ober, Kaler & Shriver, incorporated by reference to
Pre-Effective Amendment No. 2 filed May 4, 1995
(i)(2)* Opinion of Ober, Kaler, Grimes & Shriver, incorporated by
reference to Post-Effective Amendment No. 4 filed March 18, 1996
(i)(3)* 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
(i)(4)* Opinion of Ober, Kaler, Grimes & Shriver for Vintage Funds,
incorporated by reference to Post-Effective Amendment No. 9 filed
January 6, 1998
(i)(5)* Consent of Cline, Williams, Wright, Johnson & Oldfather incorporated
by reference to Post-Effective Amendment No. 14 filed July 16, 1999
(i)(6)** Opinion of Ober, Kaler, Grimes & Shriver for Institutional Reserves
Fund
(j)(1)* Consent of KPMG Peat Marwick LLP incorporated by reference to
Post-Effective Amendment No. 14 filed July 16, 1999
(j)(2) Consent of McGladrey & Pullen LLP.
(k) Not Applicable
(l)* Subscription Agreement of Initial Stockholder, incorporated by
reference to the Fund's Registration Statement, filed December 14,
1994
(m) Distribution and Shareholder Services Plan
(n)(1)* 18f-3 Plan, incorporated by reference to the Pre-Effective
Amendment No. 3, filed May 18, 1995
(n)(2)** Amended 18f-3 Plan
(p)(1)** Fund Code of Ethics
(p)(2)** Adviser Code of Ethics
(p)(3)** Distributor Code of Ethics
OTHERS
a* Power of Attorney, incorporated by reference to Post-Effective
Amendment No. 11 filed March 23, 1998
*All previously filed.
**To be filed by amendment.
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 the
Articles of Incorporation included herewith as Exhibit a)(1)(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 (b), 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 (d) and Paragraph III of the Distribution Agreement, included
herewith as Exhibit (e), provides that Investors Management Group, Ltd., ("IMG")
and BISYS Fund Services Limited Partnership, ("BISYS"), shall not be liable to
the Funds for any error of judgment or mistake of law or for any loss suffered
by the Funds in connection with the matters to which their Agreements relate,
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 their performance of
their duties or from reckless disregard by it of its obligations and duties
under its Agreement. In addition, Paragraph 9 of the Transfer Agency and
Paragraph 8 of the Servicing Agreement to the Administrative Services Plan,
included herewith as Exhibit (h)(1) and (h)(4), respectively, further indemnify
IMG and BISYS 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, American Performance Funds, AmSouth Mutual Funds, The BB&T Mutual Funds
Group, The Coventry Group, ESC Strategic Funds, Inc., The Eureka Funds, Governor
Funds, Fifth Third Funds, Hirtle Callaghan Trust, HSBC Funds Trust and HSBC
Mutual Funds Trust, INTRUST Funds Trust, The Infinity Mutual Funds, Inc., Magna
Funds, Mercantile Mutual Funds, Inc., Metamarkets.com, Meyers Investment Trust,
MMA Praxis Mutual Funds, M.S.D.&T. Funds, Pacific Capital Funds, Republic
Advisor Funds Trust, Republic Funds Trust, Sefton Funds Trust, SSgA
International Liquidity Fund, Summit Investment Trust, USAllianz Funds,
USAllianz Funds Variable Insurance Products Trust, Valenzuela Capital Trust,
Variable Insurance Funds, The Victory Portfolios, The Victory Variable Insurance
Funds, and Vintage Mutual Funds, Inc., 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
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, the Registrant 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 __ day of February, 2000.
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 | February___, 2000
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 |
VINTAGE MUTUAL FUNDS, INC.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
(e) Form of Distribution Agreement
(h)(1) Form of Transfer Agency Agreement
(h)(2) Form of Management and Administration Agreement
(h)(3) Form of Fund Accounting Agreement
(h)(4) Form of Aministrative Services Plan
(j)(2) Consent of McGladrey & Pullen LLP
(m) Distribution and Shareholder Services Plan
DISTRIBUTION AGREEMENT
Distribution Agreement made as of the 9th day of April, 1998, effective as
of the 13th day of February, 1998, between VINTAGE Mutual Funds, Inc. (the
"Company"), a Maryland Corporation having its principal office and place of
business at 2203 Grand Avenue, Des Moines, Iowa 50312-5338, and BISYS FUND
SERVICES LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES (the "Distributor"), an
Ohio limited partnership having its principal office and place of business at
3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Company is an open-end, management investment company and is
so registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Company has adopted a Distribution and Shareholder Service
Plan, dated as of April 9, 1998 (the "Plan") which is incorporated herein by
reference and pursuant to which the Company desires to enter into this
Agreement; and
WHEREAS, the Company desires to retain the Distributor as distributor for
the Company's separate portfolios and, where applicable, separate classes of
each Fund (each a "Class" or collectively "Classes") set forth on Schedule 1
hereto, as such may be revised from time to time (each, a "Fund" or collectively
"Funds"), to provide for the sale and distribution of the Funds' shares (the
"Shares"), and the Distributor is willing to render such services;
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Company has delivered to the Distributor copies of the following
documents and will deliver to the Distributor all
future amendments and supplements thereto, if any:
(a) The Company's Articles of Incorporation and all amendments thereto (as
presently in effect and as from time to time amended, herein called
the "Charter");
(b) The Company's By-laws (as presently in effect and as from time to time
amended, herein called the "By-laws");
(c) Resolutions of the Board of Directors of the Company authorizing the
execution and delivery of this Agreement;
(d) The Company's Registration Statement under the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act on Form N-1A most
recently filed with the Securities and Exchange Commission (the
"Commission") relating to the Shares, and all subsequent amendments or
supplements thereto (the "Registration Statement");
(e) The Company's Notification of Registration under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) The Company's current Prospectuses and Statements of Additional
Information for each Fund (as presently in effect and as from time to
time amended and supplemented, herein called the "Prospectus"); and
(g) The Funds' current Distribution Plan.
II. DISTRIBUTION
1. Appointment of Distributor. The Company hereby appoints the
Distributor as principal distributor of the Shares and the Distributor
hereby accepts such appointment and agrees to render the services and
duties set forth in this Section II.
2. Services and Duties.
(a) The Company agrees to sell through the Distributor, as agent, from
time to time during the term of this Agreement, Shares of the Funds
(whether authorized but unissued or treasury shares, in the Company's
sole discretion) upon the terms and at the current offering price as
described in the applicable Prospectus. The Distributor will act only
in its own behalf as principal in making agreements with selected
broker/dealers ("Dealers") or others for the sale and redemption of
Shares, and shall sell Shares only at the offering price thereof as
set forth in the applicable Prospectus. The Distributor shall devote
its best efforts to effect the sale of Shares of each Fund, but shall
not be obligated to sell any certain number of Shares.
(b) In all matters relating to the sale and redemption of Shares, the
Distributor will act in conformity with the Company's Charter, By-laws
and Prospectuses and with the instructions and directions of the
Company's Board of Directors and will conform to and comply with the
requirements of the 1933 Act, the 1940 Act, the regulations of the
National Association of Securities Dealers, Inc. and all other
applicable Federal or state laws and regulations. In connection with
the sale of Shares, the Distributor acknowledges and agrees that it is
not authorized to provide any information or make any representation
other than as contained in the Company's Registration Statement or
Prospectuses and any sales literature specifically approved by the
Funds.
(c) The Distributor will bear the costs and expenses of (i) printing and
distributing to prospective investors copies of any Prospectus
(including any supplement thereto) of the Funds (after such items have
been prepared and set in type by the Funds) which are used in
connection with the offering of Shares of a Fund; and (ii) preparing,
printing and distributing any other literature used by the Distributor
in connection with the sale of the Shares; (iii) any expense of
sending confirmations and statements to any dealer having a sales
agreement with the Distributor; and (iv) any compensation paid to
dealers in connection with the sale of Shares; provided, however, that
the Distributor shall not be obligated to bear the expenses incurred
by the Funds in connection with the preparation and printing
Prospectuses used for regulatory purposes and for distribution to
existing shareholders. Concessions by the Distributor to Dealers and
other persons shall be set forth in either the selling agreements
between the Distributor and such Dealers and persons or, if such
concessions are described in the then current Prospectuses, shall be
as set forth. No Dealer or other person who enters into a selling
agreement with the Distributor shall be authorized to act as agent for
the Funds in connection with the offering or sale of its Shares to the
public or otherwise.
(d) All Shares of the Funds offered for sale by the Distributor shall be
offered for sale to the public at a price per Share (the "offering
price") equal to their net asset value (determined in the manner set
forth in the Company's Charter and then current Prospectuses). The
offering price, if not an exact multiple of one cent, shall be
adjusted to the nearest cent. The Company reserves the right to reject
any order but will not do so without reasonable cause.
(e) The Distributor shall, no less than quarterly, provide the Company's
Board of Directors with a written report (in a form acceptable to the
Funds) of its activities as distributor for each Fund.
3. Sales and Redemptions.
(a) The Company shall pay all costs and expenses of the Funds, including
fees and disbursements of its counsel, in connection with the
registration of the Shares under the 1933 Act, and all expenses in
connection with maintaining facilities for the issue and transfer of
the Shares and for supplying information, prices and other data to be
furnished by the Company hereunder, and all expenses in connection
with preparing, printing and distributing to shareholders, any
Prospectus(es), statements and periodic reports(including the expense
of setting in type), except as set forth in subsection 2(c) of Section
II hereof. Under the terms of the Plan, the Company shall compensate
the Distributor through a distribution fee payable monthly at the
annual rate set forth opposite each Fund and, where applicable, Class
on Schedule 1 hereton, based upon the value of average daily net
assets of each Fund or Class as defined in the Registration Statement.
(b) The Company shall execute all documents, furnish all information and
otherwise take all actions which may be reasonably necessary in the
discretion of the Company's officers in connection with the
qualification of the Shares for sale in such states as the Distributor
may designate to the Company and the Company may approve, and the
Funds shall pay all fees which may be incurred in connection with such
qualification. The Distributor shall pay all expenses connected with
its qualification as a dealer under state or Federal laws and, except
as otherwise specifically provided in this Agreement, all other
expenses incurred by the Distributor in connection with the sale of
the Shares as contemplated in this Agreement. It is understood that
certain advertising, marketing, shareholder servicing, administration
and/or distribution expenses to be incurred in connection with the
Shares may be paid as provided in any plan which may be adopted by the
Funds in accordance with Rule 12b-1 under the 1940 Act.
(c) The Company hereby authorizes the Distributor to repurchase, upon the
terms and conditions set forth in the Registration Statement (as the
same may be supplemented by written instructions given by the Funds to
the Distributor from time to time), as agent of the Funds and for the
account of the Funds, such shares as may be offered for sale to the
Funds from time to time.
(d) The Company shall have the right to suspend the sale of Shares of any
Fund at any time in response to conditions in the securities markets
or otherwise, and to suspend the redemption of Shares of any Fund at
any time permitted by the 1940 Act or the rules of the Commission.
(e) The Company reserves the right to reject any order for Shares.
(f) No Shares shall be offered by either the Company or the Distributor
under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Funds if
and so long as the effectiveness of the Registration Statement shall
be suspended under any of the provisions of the 1933 Act, or if and so
long as a Prospectus as required by Section 10 of the 1933 Act is not
on file with the Commission; provided, however, that nothing contained
in this sub-paragraph shall in any way restrict or have any
application to or bearing upon the Funds' obligation to repurchase any
Shares from any shareholder in accordance with the provisions of the
Charter or Prospectuses.
III. LIMITATION OF LIABILITY
The Distributor shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Funds or any Fund in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the Distributor's part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
director, partner, employee or agent of the Distributor, who may be or become an
officer, director, employee or agent of the Funds, shall be deemed, when
rendering services to the Funds or to any Fund, or acting on any business of the
Funds or of any Fund (other than services or business in connection with the
Distributor's duties as distributor hereunder), to be rendering such services to
or acting solely for the Funds or a Fund and not as an officer, director,
partner, employee or agent or one under the control or direction of the
Distributor even though paid by the Distributor.
IV. REPRESENTATIONS AND WARRANTIES
1. Company's Representations. The Company represents and warrants to the
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 Act
and the rules and regulations thereunder and will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty in this subsection shall apply to statements or
omissions made in reliance upon and in conformity with written information
furnished to the Company by, or on behalf of, and with respect to, the
Distributor expressly for use in the Registration Statement or Prospectuses.
2. Distributor's Representations. The Distributor represents and warrants
to the Company that it is duly organized as an Ohio limited partnership and is
and at all times will remain duly authorized and licensed to carry out its
services as contemplated herein.
V. INDEMNIFICATION
1. Company's Indemnification. The Company and each of the Funds will
indemnify, defend and hold harmless the Distributor, its several officers and
directors, and any person who controls the Distributor within the meaning of
Section 15 of the 1933 Act, from and against any losses, claims, damages or
liebilities, joint or several, to which any of them may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of, or are based upon,
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, the Prospectuses or in any application or other
document executed by or on behalf of the Company, or arise out of, or are based
upon, information furnished by or on behalf of the Funds filed in any state in
order to qualify the Shares under the securities or blue sky laws thereof ("Blue
Sky Application"), or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Distributor, its several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, for any legal or
other expenses reasonably incurred by any of them in investigating, defending or
preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, any untrue
statement, alleged untrue statemens, or omission or alleged omission made in the
Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Funds in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of and with respect to the Distributor specifically for inclusion
therein.
The Company shall advance attorneys' fees and other expenses incurred by
any person in defending any claim, demand, action or suit which is the subject
of a claim for indemnification pursuant to this subsection 1, so long as such
person shall: (i) undertake to repay all such advances if it is ultimately
determined that he is not entitled to indemnification hereunder; and (ii)
provide security for such undertaking, or the Company shall be insured against
losses arising by reason of any lawful advances, or a majority of a quorum of
the disinterested, non-party Directors of the Company (or an independent legal
counsel in a written opinion) shall determine based on a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such person ultimately will be found entitled to indemnification
hereunder.
2. Distributor's Indemnification. The Distributor will indemnify, defend
and hold harmless the Company, each Fund, the Company's several officers and
Directors and any person who controls the Company or any Fund within the meaning
of Section 15 of the 1933 Act, from and against any losses, claims, damages or
liabilities, joint or several, to which any of them may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or linbilities
(or actions or proceedings in respect hereof) arise out of, or are based upon,
any breach of its representations and warranties in subsection 2 hereof or its
agreements in subsection 2 of Section II of this Agreement, or which arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectuses, any
Blue Sky Application or any application or other document executed by or on
behalf of the Funds, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, which statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company or any of
its several officers and Directors by or on behalf of and with respect to the
Distributor specifically for inclusion therein, and will reimburse the Company,
each Fund, the Company's several officers and Directors, and any person who
controls the Company or any Fund within the meaning of Section 15 of the 1933
Act, for any legal or other expenses reasonably incurred by any of them in
investigating, defending or preparing to defend any such action, proceeding or
claim.
3. General Indemnity Provisions. No indemnifying party shall be liable
under its indemnity ngreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party.
VI. TERM
As to each Fund, this Agreement shall continue until April 9, 2000 and
thereafter shall continue automatically for successive annual periods provided
such continuance is specifically approved as to the Fund at least annually by
(a) the Board of Directors or (b) vote of a majority (as defined in the 1940
Act) of such Fund's outstanding voting securities, provided that in either event
its continuance also is approved by a majority of the Company's Directors who
are not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. Provided, however, that this Agreement is terminable without
penalty, on 60 days' written notice to the Distributor, by the Company's
Directors or by vote of a majority of such Fund's shares or, upon not less than
90 days' written notice to the Company, by the Distributor. This Agreement will
automatically terminate, as to the relevant Funds, in the event of its
assignment (as defined in the 1940 Act).
VII. MISCELLANEOUS
1. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
2. Construction. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section IV hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by Iowa law; provided,
however, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation thereunder.
3. Notice. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Company shall be sufficiently
given if addressed to the Company and mailed or delivered to it at its office at
the address first above written, or at such other place as the Company may from
time to time designate in writing. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the Distributor shall be
sufficiently given if addressed to the Distributor and mailed or delivered to at
its office at the address first above written, or at such other place as the
Distributor may from time to time designate in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of
the day and year first above written.
VINTAGE Mutual Funds, Inc.
Attest:
By:
Ruth L. Prochaska David W. Miles
Secretary President
BISYS FUND SERVICES LIMITED
PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
Attest:________________ By: _____________________________
Name: _________________ Name: _____________________________
Title:_________________ Title: _____________________________
Schedule 1
Distribution Fees
Vintage Mutual Funds, Inc.
Maximum
Annual Fee Present
Fund/Class Per Plan Approved Fee
Institutional Reserves 0.25% 0.00%
Government Assets
"S" Shares 0.25% 0.00%
Liquid Assets
"S" Shares 0.50% 0.40%
"S2" Shares 0.25% 0.15%
Municipal Assets
"S" Shares 0.25% 0.15%
Vintage Limited Term 0.25% 0.00%
Vintage Bond 0.25% 0.00%
Vintage Income 0.25% 0.00%
Vintage Municipal Bond 0.25% 0.00%
Vintage Balanced 0.25% 0.00%
Vintage Equity
"S" Shares 0.25% 0.00%
"T" Shares 0.25% 0.00%
Vintage Aggressive Growth 0.25% 0.00%
As amended February 17, 2000.
TRANSFER AGENCY AGREEMENT
AGREEMENT made this 13th day of February, 1998, between VINTAGE MUTUAL
FUNDS, INC. (the "Company"), a Maryland corporation having its principal
place of business at 2203 Grand Avenue, Des Moines, Iowa 50312, and
INVESTORS MANAGEMENT GROUP, LTD. ("IMG"), an Iowa corporation having its
principal place of business at 2203 Grand Avenue, Des Moines, Iowa 50312.
WHEREAS, the Company desires that IMG perform certain services for
each series of the Company identified in Schedule A hereto (individually
referred to herein as a "Fund" and collectively as the "Funds"); and
WHEREAS, IMG is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
IMG shall perform for the Company the transfer agent services set
forth in Schedule B hereto. IMG also agrees to perform for the Company such
special services incidental to the performance of the services enumerated
herein as agreed to by the parties from time to time. IMG shall perform
such additional services as are provided on an amendment to Schedule B
hereof, in consideration of such fees as the parties hereto may agree.
IMG may, in its discretion, appoint in writing other parties qualified
to perform transfer agency services reasonably acceptable to the Company
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided,
however, that the Sub-transfer Agent shall be the agent of IMG and not the
agent of the Company or such Fund, and that IMG shall be fully responsible
for the acts of such Sub-transfer Agent and shall not be relieved of any of
its responsibilities hereunder by the appointment of such Sub-transfer
Agent.
2. Fees.
The Company shall pay IMG for the services to be provided by IMG under
this Agreement in accordance with, and in the manner set forth in, Schedule
C hereto. Fees for any additional services to be provided by IMG pursuant
to an amendment to Schedule B hereto shall be subject to mutual agreement
at the time such amendment to Schedule B is proposed.
3. Reimbursement of Expenses.
In addition to paying IMG the fees described in Section 2 hereof, the
Company agrees to reimburse IMG for IMG' out-of-pocket expenses in
providing services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges incurred by
IMG in delivering materials to and from the Company and in
delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by IMG in
communication with the Company, the Company's investment adviser
or custodian, dealers, shareholders or others as required for IMG
to perform the services to be provided hereunder;
(c) Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be required
by IMG for the performance of the services to be provided
hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses IMG shall incur at the written direction of an
officer of the Company thereunto duly authorized.
4. Effective Date.
This Agreement shall become effective as of the date first written
above (the "Effective Date").
5. Term.
This Agreement shall continue in effect with respect to a Fund, unless
earlier terminated by either party hereto as provided hereunder, until
February 13, 2000 (the "Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall be renewed
automatically for successive one-year periods ("Rollover Periods"),
provided however, that this Agreement may be terminated without penalty (i)
by mutual agreement of the parties, (ii) during the Initial Term for
"cause" as defined below, upon the provision of 60 days advance written
notice by the party alleging cause, or (iii) during any Rollover Period for
any reason upon 60 days advance written notice by either party.
For purposes of this Agreement, "cause" shall mean (a) a material
breach of this Agreement that has not been cured within thirty (30) days
following written notice of such breach from the non-breaching party; (b) a
final, unappealable judicial, regulatory or administrative ruling or order
in which the party to be terminated has been found guilty of criminal or
unethical behavior in the conduct of its business; or (c) financial
difficulties on the part of the party to be terminated which are evidenced
by the authorization or commencement of, or involvement by way of pleading,
answer, consent or acquiescence in, a voluntary or involuntary case under
Title 11 of the United States Code, as from time to time is in effect, or
any applicable law, other than said Title 11, of any jurisdiction relating
to the liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors.
After such termination, for so long as IMG, with the written consent
of the Company, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto,
the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Fees and out-of-pocket expenses incurred by IMG but unpaid by the
Company upon such termination shall be immediately due and payable upon and
notwithstanding such termination. IMG shall be entitled to collect from the
Company, in addition to the fees and disbursements provided by Sections 2
and 3 hereof, the amount of all of IMG' cash disbursements in connection
with IMG' activities in effecting such termination, including without
limitation, the delivery to the Company and/or its distributor or
investment adviser and/or other parties, of the Company's property,
records, instruments and documents, or any copies thereof. To the extent
that IMG may retain in its possession copies of any Company documents or
records subsequent to such termination which copies had not been requested
by or on behalf of the Company in connection with the termination process
described above, IMG, for a reasonable fee, will provide the Company with
reasonable access to such copies.
During the Initial Term, if without cause, IMG is replaced as transfer
agent, or if a third party is added to perform all or a part of the services
provided by IMG under this Agreement (excluding any sub-transfer agent appointed
by IMG as provided in Section 1 hereof), then the Company shall make a one-time
cash payment, as liquidated damages to, IMG equal to the balance due IMG for the
remainder of the term of this Agreement, assuming for purposes of calculation of
the payment that the number of shareholder accounts within the Company on the
date IMG is replaced, or a third party is added, will remain constant for the
balance of the contract term.
In the event the Company is merged into another legal entity in part or in
whole or is otherwise liquidated in part or in whole pursuant to a business
reorganization prior to the expiration of the then-current term of this
Agreement, the parties acknowledge and agree that (i) the liquidated damages
provision set forth above shall be applicable in those instances in which IMG is
not retained by the surviving entity to provide transfer agency services and
(ii) for purposes of calculating the payment amount representing liquidated
damages, the number of shareholder accounts within the Company shall be the
greater of: (i) the number of shareholder accounts at the time the Company's
Board of Directors receives notification of an intention on the part of Fund
management to effect such a business reorganization; (ii) the number of
shareholder accounts at the time the Company's Board of Directors formally
approves such a business reorganization; or (iii) the number of shareholder
accounts on the day prior to the first day during which assets are transferred
by the Company to the surviving entity pursuant to the plan of reorganization.
The one-time cash payment referenced above shall be due and payable on the day
prior to the first day during which assets are transferred to the surviving
entity pursuant to the plan of reorganization.
The parties further acknowledge and agree that, in the event IMG is
replaced, or a third party is added, as set forth above, (i) a determination of
actual damages incurred by IMG would be extremely difficult, and (ii) the
liquidated damages provision contained herein is intended to adequately
compensate IMG for damages incurred and is not intended to constitute any form
of penalty.
6. Uncontrollable Events.
IMG assumes no responsibility hereunder, and shall not be liable for any
damage, loss of data, delay or any other loss whatsoever caused by events beyond
its reasonable control.
7. Legal Advice.
IMG shall notify the Company at any time IMG believes that it is in need of
the advice of counsel (other than counsel in the regular employ of IMG or any
affiliated companies) with regard to IMG' responsibilities and duties pursuant
to this Agreement; and after so notifying the Company, IMG, at its discretion,
shall be entitled to seek, receive and act upon advice of legal counsel of its
choosing, such advice to be at the expense of the Company or Funds unless
relating to a matter involving IMG' willful misfeasance, bad faith, gross
negligence or reckless disregard with respect to IMG' responsibilities and
duties hereunder and IMG shall in no event be liable to the Company or any Fund
or any shareholder or beneficial owner of the Company for any action reasonably
taken pursuant to such advice.
8. Instructions.
Whenever IMG is requested or authorized to take action hereunder pursuant
to instructions from a shareholder, or a properly authorized agent of a
shareholder ("shareholder's agent"), concerning an account in a Fund, IMG shall
be entitled to rely upon any certificate, letter or other instrument or
communication, believed by IMG to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Company or
by the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Company or
any other person authorized by the Company's Board of Directors or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, IMG may rely conclusively upon
the terms of the Prospectuses and Statement of Additional Information of the
Company relating to the Funds to the extent that such services are described
therein unless IMG receives written instructions to the contrary in a timely
manner from the Company.
9. Standard of Care; Reliance on Records and Instructions; Indemnification.
IMG shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Company for any
action taken or omitted by IMG in the absence of bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties. The
Company agrees to indemnify and hold harmless IMG, its employees, agents,
directors, officers and nominees from and against any and all claims, demands,
actions and suits, whether groundless or otherwise, and from and against any and
all judgments, liabilities, losses, damages, costs, charges, counsel fees and
other expenses of every nature and character arising out of or in any way
relating to IMG' actions taken or nonactions with respect to the performance of
services under this Agreement or based, if applicable, upon reasonable reliance
on information, records, instructions or requests given or made to IMG by the
Company, the investment adviser and on any records provided by any fund
accountant or custodian thereof; provided that this indemnification shall not
apply to actions or omissions of IMG in cases of its own bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties; and further provided that prior to confessing any claim against it which
may be the subject of this indemnification, IMG shall give the Company written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of IMG.
10. Record Retention and Confidentiality.
IMG shall keep and maintain on behalf of the Company all books and records
which the Company or IMG is, or may be, required to keep and maintain pursuant
to any applicable statutes, rules and regulations, including without limitation
Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), relating to the maintenance of books and records in connection with
the services to be provided hereunder. IMG further agrees that all such books
and records shall be the property of the Company and to make such books and
records available for inspection by the Company or by the Securities and
Exchange Commission (the "Commission") at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Company
and its shareholders, except when requested to divulge such information by
duly-constituted authorities or court process, or requested by a shareholder or
shareholder's agent with respect to information concerning an account as to
which such shareholder has either a legal or beneficial interest or when
requested by the Company, the shareholder, or shareholder's agent, or the dealer
of record as to such account.
11. Reports.
IMG will furnish to the Company and to its properly-authorized auditors,
investment advisers, examiners, distributors, dealers, underwriters, salesmen,
insurance companies and others designated by the Company in writing, such
reports at such times as are prescribed in Schedule D attached hereto, or as
subsequently agreed upon by the parties pursuant to an amendment to Schedule D.
The Company agrees to examine each such report or copy promptly and will report
or cause to be reported any errors or discrepancies therein not later than three
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within three days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and be binding upon the Company and
any other recipient, and IMG shall have no liability for errors or discrepancies
therein and shall have no further responsibility with respect to such report
except to perform reasonable corrections of such errors and discrepancies within
a reasonable time after requested to do so by the Company.
12. Rights of Ownership.
All computer programs and procedures developed to perform services required
to be provided by IMG under this Agreement are the property of IMG. All records
and other data except such computer programs and procedures are the exclusive
property of the Company and all such other records and data will be furnished to
the Company in appropriate form as soon as practicable after termination of this
Agreement for any reason.
13. Return of Records.
IMG may at its option at any time, and shall promptly upon the Company's
demand, turn over to the Company and cease to retain IMG' files, records and
documents created and maintained by IMG pursuant to this Agreement which are no
longer needed by IMG in the performance of its services or for its legal
protection. If not so turned over to the Company, such documents and records
will be retained by IMG for six years from the year of creation. At the end of
such six-year period, such records and documents will be turned over to the
Company unless the Company authorizes in writing the destruction of such records
and documents.
14. Bank Accounts.
The Company and the Funds shall establish and maintain such bank accounts
with such bank or banks as are selected by the Company, as are necessary in
order that IMG may perform the services required to be performed hereunder. To
the extent that the performance of such services shall require IMG directly to
disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Company and Funds shall provide such bank or banks with all
instructions and authorizations necessary for IMG to effect such disbursements.
15. Representations of the Company.
The Company certifies to IMG that: (a) as of the close of business on the
Effective Date, each Fund which is in existence as of the Effective Date has
authorized unlimited shares, and (b) by virtue of its Articles of Incorporation,
shares of each Fund which are redeemed by the Company may be sold by the Company
from its treasury, and (c) this Agreement has been duly authorized by the
Company and, when executed and delivered by the Company, will constitute a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
16. Representations of IMG.
IMG represents and warrants that: (a) IMG has been in, and shall continue
to be in, substantial compliance with all provisions of law, including Section
17A(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
required in connection with the performance of its duties under this Agreement;
and (b) the various procedures and systems which IMG has implemented with regard
to safekeeping from loss or damage attributable to fire, theft or any other
cause of the blank checks, records, and other data of the Company and IMG'
records, data, equipment, facilities and other property used in the performance
of its obligations hereunder are adequate and that it will make such changes
therein from time to time as are required for the secure performance of its
obligations hereunder.
17. Insurance.
IMG shall notify the Company should its insurance coverage with respect to
professional liability or errors and omissions coverage be canceled or reduced.
Such notification shall include the date of change and the reasons therefor. IMG
shall notify the Company of any material claims against it with respect to
services performed under this Agreement, whether or not they may be covered by
insurance, and shall notify the Company from time to time as may be appropriate
of the total outstanding claims made by IMG under its insurance coverage.
18. Information to be Furnished by the Company and Funds.
The Company has furnished to IMG the following:
(a) Copies of the Articles of Incorporation of the Company and
of any amendments thereto, certified by the proper official
of the state in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Company's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of
Directors covering the following matters:
A. Approval of this Agreement and authorization of a
specified officer of the Company to execute and deliver
this Agreement and authorization for specified officers
of the Company to instruct IMG hereunder; and
B. Authorization of IMG to act as Transfer Agent for the
Company on behalf of the Funds.
(c) A list of all officers of the Company, together with
specimen signatures of those officers, who are authorized to
instruct IMG in all matters.
(d) Two copies of the following (if such documents are employed
by the Company):
1. Prospectuses and Statement of Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Company or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the
Company authorized, issued, and outstanding as of the
Effective Date of IMG' appointment as Transfer Agent (or as
of the date on which IMG' services are commenced, whichever
is the later date) and as to receipt of full consideration
by the Company for all shares outstanding, such statement to
be certified by the Treasurer of the Company.
19. Information Furnished by IMG.
IMG has furnished to the Company the following:
(a) IMG' Articles of Incorporation.
(b) IMG' Bylaws and any amendments thereto.
(c) Certified copies of actions of IMG covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of IMG to execute and deliver this
Agreement;
2. Authorization of IMG to act as Transfer Agent for the
Company.
(d) A copy of the most recent independent accountant' report
relating to internal accounting control systems as filed
with the Commission pursuant to Rule 17Ad-13 under the
Exchange Act.
20. Amendments to Documents.
The Company shall furnish IMG written copies of any amendments to, or
changes in, any of the items referred to in Section 18 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Company agrees
that no amendments will be made to the Prospectuses or Statement of Additional
Information of the Company which might have the effect of changing the
procedures employed by IMG in providing the services agreed to hereunder or
which amendment might affect the duties of IMG hereunder unless the Company
first obtains IMG' approval of such amendments or changes.
21. Reliance on Amendments.
IMG may rely on any amendments to or changes in any of the documents and
other items to be provided by the Company pursuant to Sections 18 and 20 of this
Agreement and the Company hereby indemnifies and holds harmless IMG from and
against any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, counsel fees and other expenses of every nature
and character which may result from actions or omissions on the part of IMG in
reasonable reliance upon such amendments and/or changes. Although IMG is
authorized to rely on the above-mentioned amendments to and changes in the
documents and other items to be provided pursuant to Sections 18 and 20 hereof,
IMG shall be under no duty to comply with or take any action as a result of any
of such amendments or changes unless the Company first obtains IMG' written
consent to and approval of such amendments or changes.
22. Compliance with Law.
Except for the obligations of IMG set forth in Section 10 hereof, the
Company assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Company as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. IMG shall have no obligation to take cognizance
of any laws relating to the sale of the Company's shares. The Company represents
and warrants that no shares of the Company will be offered to the public until
the Company's registration statement under the 1933 Act and the 1940 Act has
been declared or becomes effective.
23. Notices.
Any notice provided hereunder shall be sufficiently given when sent by
registered or certified mail to the party required to be served with such notice
at the following address: 3435 Stelzer Road, Columbus, Ohio 43219, or at such
other address as such party may from time to time specify in writing to the
other party pursuant to this Section.
24. Headings.
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
25. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
by either of the parties hereto except by the specific written consent of the
other party. This Section 25 shall not limit or in any way affect IMG' right to
appoint a Sub-transfer Agent pursuant to Section 1 hereof. This Agreement shall
be binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
26. Governing Law
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
VINTAGE MUTUAL FUNDS, INC.
By:________________________________
INVESTORS MANAGEMENT GROUP, LTD.
By:________________________________
Dated: February 17, 2000
SCHEDULE A TO THE TRANSFER AGENCY AGREEMENT BETWEEN VINTAGE MUTUAL FUNDS, INC.
AND INVESTORS MANAGEMENT GROUP
Portfolios
Institutional Reserves Fund
Liquid Assets Fund ("S", "S2" and "I" Class)
Municipal Assets Fund ("S" and "I" Class)
Government Assets Fund ("S" Class Only)
VINTAGE MUTUAL FUNDS, INC.
By:
Title:
INVESTORS MANAGEMENT GROUP , LTD.
By:
Title:
Dated: February 13, 1998
SCHEDULE B TO THE TRANSFER AGENCY AGREEMENT BETWEEN VINTAGE MUTUAL FUNDS, INC.
AND INVESTORS MANAGEMENT GROUP, LTD. TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new units
through dividend reimbursement.
2. Shareholder Information Services
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
3. Compliance Reporting
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service forms
for corresponding Fund and shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and purchases
made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchase for Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the Company.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third
party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
Dated: February 17, 2000
SCHEDULE C TO THE TRANSFER AGENCY AGREEMENT BETWEEN VINTAGE MUTUAL FUNDS, INC.
AND INVESTORS MANAGEMENT GROUP, LTD.
TRANSFER AGENT FEES
Annual Base Fee: Subject to the annual minimums set forth below, each Fund shall
pay the following annual base fees:
Daily Dividend Funds $16 per shareholder account
All other Funds $14 per shareholder account
Minimum Fees: Notwithstanding the fee amounts set forth above, the annual base
fee shall not be less than the following minimum fee amounts:
1. Government Assets Fund ("S" Shares)
Liquid Assets Fund ("S", "S2" and "I" Shares),
Municipal Assets Fund ("S" and "I" Shares)
# of Shareholders Minimum Fee Amount
0 - 99 $6,000
100 - 199 12,000
200 - 299 18,000
300 - 499 24,000
500 + 36,000
2. All Other Funds
$18,000 for a Fund with less than 100 shareholders
$24,000 for a Fund with 100 or more shareholders but less than 500
shareholders
$36,000 for a Fund with 500 or more shareholders
3. Institutional Reserves Fund
Annual Rate of six one-hundredths of one percent (0.06%) of Fund's average daily
net assets.
Other Provisions: For Funds with more than one class of shares, this fee
schedule shall apply separately to each class.
Additional services such as processing of individual retirement accounts shall
pay additional fees as agreed in writing between the parties.
Special reports or specialized processing, the programming costs or data base
management fees for such services will be agreed upon in writing by the parties
All fees are subject to an annual increases as agreed in writing between the
parties
Out-of-pocket Expenses: IMG shall be entitled to be reimbursed for all
reasonable out-of-pocket expenses including, but not limited to, the expenses
set forth in Section 3 of this Agreement.
VINTAGE MUTUAL FUNDS, INC.
By:
Title:
INVESTORS MANAGEMENT GROUP, LTD.
By:
Title:
SCHEDULE D TO THE TRANSFER AGENCY AGREEMENT BETWEEN VINTAGE MUTUAL FUNDS, INC.
AND INVESTORS MANAGEMENT GROUP, LTD. REPORTS
1. Daily Account Holder Activity Journal
2. Daily Portfolio Activity Summary Report
a. Beginning Balance
b. Account Holder Transactions
c. Reinvested Dividends
d. Exchanges
e. Adjustments
f. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dividend Reports
5. Monthly Dealer Processing Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning IMG shareholder
system and internal accounting control systems to be filed with the Securities
and Exchange Commission pursuant to Rule 17Ad-13 of the Securities and Exchange
Act of 1934, as amended.
MANAGEMENT AND ADMINISTRATION AGREEMENT
As of July 29, 1998
Vintage Mutual Funds, Inc., a Maryland corporation (the "Company") herewith
confirms its Agreement with Investors Management Group (the "Administrator") as
follows:
The Company desires to employ a portion of its capital by investing and
reinvesting the same in investments of the type and in accordance with the
limitations specified in its Prospectus and Statement of Additional Information
relating to the investment portfolios and any additional investment portfolios
of the Company as each are or will be identified in Schedule A hereto (such
investment portfolios and any additional investment portfolios together called
the "Funds"), copies of which have been or will be submitted to the
Administrator, and in resolutions of the Company's Board of Directors. The
Company and the Administrator hereby agree that the Administrator will serve as
the manager and administrator for the Funds upon the following terms and
conditions.
1. Services as Manager and Administrator
Subject to the direction and control of the Board of Directors of the
Company, the Administrator will assist in supervising all aspects of the
operations of the Funds except those performed by the investment advisor for the
Funds under its Investment Advisory Agreement, the custodian for the Funds under
its Custodian Agreement, the transfer agent for the Funds under its Transfer
Agency Agreement and the fund accountant for the Funds under its Fund Accounting
Agreement.
The Administrator will maintain office facilities (which may be in the
offices of the Administrator or an affiliate but shall by in such location as
the Company shall reasonably determine); furnish statistical and research data,
clerical and certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the Securities and Exchange Commission (the
"Commission") on Form N-SAR or any replacement forms therefor; compile data for,
prepare for execution by the Funds and file all 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 Company with the Company's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statements (on Form
N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the Investment
Company Act of 1940 (the "1940 Act"); keep and maintain the financial accounts
and records of the Funds, including calculations of daily expense accruals; in
the case of money market funds, periodic review of the amount of the deviation,
if any, of the current net asset value per share (calculated using available
market quotations or an appropriate substitute that reflects current market
conditions) from each money market fund's amortized cost price per share; and
generally assist in all aspects of the operations of the Funds. In compliance
with the requirements of Rule 31a-3 under the 1940 Act, the Administrator hereby
agrees that all records which it maintains for the Company are the property of
the Company and further agrees to surrender promptly to the Company any of such
records upon the Company's request. The Administrator further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records required
to be maintained by Rule 31a-1 under the 1940 Act. The Administrator may
delegate some or all of its responsibilities under this Agreement.
The Administrator may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that the Administrator shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that the Administrator shall be responsible, to the extent
provided in Section 4 hereof, for all acts of such subcontractor as if such acts
were its own.
2. Fees; Expenses; Expense Reimbursement
In consideration of services rendered and expenses assumed pursuant to this
Agreement, each of the Funds will pay the Administrator on the first business
day of each month, or at such time(s) as the Administrator shall request and the
parties hereto shall agree, a fee computed daily and paid as specified below
equal to the fee calculated at the applicable annual rate set forth on Schedule
A hereto. The fee for the period from the day of the month this Agreement is
entered into until the end of that month shall be prorated according to the
proportion which such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such part
of a month shall be prorated according to the proportion which such period bears
to the full monthly period and shall be payable upon the date of termination of
this Agreement.
For the purpose of determining fees payable to the Administrator, the value
of the net assets of a particular Fund shall be computed in the manner described
in the Company's Prospectus or Statement of Additional Information respecting
that Fund as from time to time is in effect for the computation of the value of
such net assets in connection with the determination of the liquidating value of
the shares of such Fund.
The Administrator will from time to time employ or associate with itself
such person or persons as the Administrator may believe to be particularly
fitted to assist it in the performance of this Agreement. Such person or persons
may be partners, officers, or employees who are employed by both the
Administrator and the Company. The compensation of such person or persons shall
be paid by the Administrator and no obligation may be incurred on behalf of the
Funds in such respect. Other expenses to be incurred in the operation of the
Funds including taxes, interest, brokerage fees and commissions, if any, fees of
Directors who are not partners, officers, directors, shareholders or employees
of the Administrator or the investment advisor or distributor for the Funds,
commission fees and state Blue Sky qualification and renewal fees and expenses,
investment advisory fees, custodian fees, transfer and dividend disbursing
agents' fees, fund accounting fees including pricing of portfolio securities,
certain insurance premiums, to the extent authorized by the Company, outside and
inside auditing and legal fees and expenses, costs of maintenance of corporate
existence, typesetting and printing prospectuses for regulatory purposes and for
distribution to current Shareholders of the Funds, costs of Shareholders' and
Directors' reports and meetings and any extraordinary expenses will be borne by
the Funds; provided, however, that the Funds will not bear, directly or
indirectly, the cost of any activity which is primarily intended to result in
the distribution of shares of the Funds.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Company) exceed the expense limitations of any such state, the Administrator
will reimburse such Fund for a portion of such excess expenses equal to such
excess times the ratio of the fees respecting such Fund otherwise payable to the
Administrator hereunder to the aggregate fees respecting such Fund otherwise
payable to the Administrator hereunder and the Investors Management Group under
the Investment Advisory Agreement between Investors Management Group and the
Company. The expense reimbursement obligation of the Administrator is limited to
the amount of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Administrator shall reimburse a particular
Fund for such proportion of such excess expenses regardless of the amount of
fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Company so require. Such
expense reimbursement, if any will be estimated daily and reconciled and paid on
a monthly basis.
3. Proprietary and Confidential Information
The Administrator agrees on behalf of itself and its partners and employees
to treat confidentially and as proprietary information of the Company all
records and other information relative to the Company and prior, present, or
potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Company, which
approval shall not be unreasonably withheld and may not be withheld where the
Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company.
4. Limitation of Liability
The Administrator shall not be liable for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also a
partner, employee, or agent of the Administrator, who may be or become an
officer, Directors, employee, or agent of the Company or the Funds shall be
deemed, when rendering services to the Company or the Funds, or acting on any
business of that party, to be rendering such services to or acting solely for
that party and not as a partner, employee, or agent or one under the control or
direction of the Administrator even though paid by it.
5. Term
This Agreement shall become effective as of the date first written above
(or, if a particular Fund is not in existence on the date, on the date an
amendment to Schedule A to this Agreement relating to that Fund is executed) and
shall continue until December 31, 2000, and unless sooner terminated as provided
herein, thereafter shall be renewed automatically for successive three year
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. This Agreement shall be reviewed and ratified at least annually by the
Company's Board of Directors, provided that this Agreement is also reviewed and
ratified by the majority of the Company's Directors who are not parties to the
Agreement or interested persons (as defined in the 1940 Act) of any party to
this Agreement, by vote cast in person at a meeting called for the purpose of
reviewing this Agreement. The scope of such review shall be whether there is any
"cause" (as defined below) that would justify terminating the Agreement. This
Agreement is terminable with respect to a particular Fund only upon mutual
agreement of the parties hereto or for "cause" by the party alleging "cause", in
either case on not less than 60 days' notice by the Company's Board of Directors
or by the Administrator.
For purposes of this Agreement, "cause" shall mean (a) willful misfeasance,
bad faith, gross negligence or reckless disregard on the part of the party to be
terminated with respect to its obligations and duties set forth herein; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) financial difficulties on the part
of the party to be terminated which is evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent, or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (d) any circumstances which substantially impairs the performance
of the obligations and duties, as contemplated herein. Notwithstanding the
foregoing, the absence of either or both an annual review or ratification of
this Agreement by the Board of Directors shall not, in and of itself, constitute
"cause" as used herein.
If, for any reason other than "cause" as defined above, the Administrator
is replaced as fund manager and administrator, or if a third party is engaged to
perform all or a part of the services provided by the Administrator under this
Agreement (excluding any sub-administrator appointed by the Administrator as
provided in Section 1 hereof), then the Company shall make a one-time cash
payment, as liquidated damages, to the Administrator equal to the balance due
the Administrator for the remainder of the term of this Agreement, assuming for
purposes of calculation of the payment that the asset level of the Company on
the date the Administrator is replaced, or a third party is added, will remain
constant for the balance of the contract term.
6. Governing Law
The laws of the State of Iowa shall govern this Agreement. The names the
"Vintage Mutual Funds, Inc." and "Directors of the Vintage Mutual Funds, Inc."
refer respectively to the Company created and the Directors, as directors but
not individually or personally. The obligations of the Company entered into in
the name or on behalf thereof by any of the Directors, representatives or agents
are made not individually, but in such capacities, and are not binding upon any
of the Directors, Shareholders or representatives of the Company personally, but
bind only the assets of the Company, and all persons dealing with any series of
shares of the Company must look solely to the assets of the Company belonging to
such series for the enforcement of any claims against the Company.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of IN WITNESS WHEREOF, the
parties hereto have caused this instrument to be executed by their officers
designated below as of the day and year first above written.
Vintage Mutual Funds, Inc.
By:
Title:
Investors Management Group
By:
Title:
Amendment to Management and Administration Agreement
Vintage Mutual Funds, Inc., a Maryland corporation ("Company") and Investors
Management Group, Ltd. ("Administrator") hereby enter into this amendment to
that certain Management and Administration Agreement dated as of July 29, 1998,
by and between them ("Agreement").
WHEREAS, the parties have agreed that the provisions relating to limitation
of liability set forth in Paragraph 4 of the Agreement, should be clarified to
prohibit limitation of liability for the Administrator's negligence.
NOW THEREFORE, in consideration of the continuation of the Agreement and
the mutual agreements contained here, the parties agree as follows;
1. The parties agree and confirm the continuation of the Agreement on the
terms and conditions set forth therein, except as they may relate to
Paragraph 4 thereof.
2. Paragraph 4 of the Agreement is hereby amended and restated as
follows, such amended and restated Paragraph 4 superceding and
replacing in all respects Paragraph 4 of the Agreement:
"4. Limitation of Liability
The Administrator shall not be liable for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also a partner,
employee, or agent of the Administrator, who may be or become an officer,
director, employee or agent of the Company or the Funds shall be deemed, when
rendering services to the Company or the Funds, or acting on any business of
that party, to be rendering such services to or acting solely for that party and
not as a partner, employee or agent or one under the control or direction of the
Administrator even though paid by it."
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by the officers designated below, as of the day and year first written
above.
VINTAGE MUTUAL FUNDS, INC.
By:________________________________
Title:______________________________
INVESTORS MANAGEMENT GROUP, LTD.
By:________________________________
Title:______________________________
Schedule A
to the
Management and Administration Agreement
Between the Vintage Mutual Funds, Inc. and
Investors Management Group
Name of Fund Compensation*
Institutional Reserves Fund Annual Rate of twenty-one one-hundredths of one
percent (0.21%) of Fund's average daily net
assets.
Government Assets Fund Annual Rate of twenty-one one-hundredths of one
percent (0.21%) of Fund's average daily net
assets.
Liquid Assets Fund Annual Rate of twenty-one one-hundredths of one
percent (0.21%) of Fund's average daily net
assets.
Municipal Assets Fund Annual Rate of twenty-one one-hundredths of one
percent (0.21%) of Fund's average daily net
assets.
Vintage Limited Term Bond Fund Annual Rate of twenty-six one-hundredths of one
percent (0.26%) of Fund's average daily net
assets.
Vintage Bond Fund Annual Rate of twenty-six one-hundredths of one
percent (0.26%) of Fund's average daily net
assets.
Vintage Income Fund Annual Rate of twenty-six one-hundredths of one
percent (0.26%) of Fund's average daily net
assets.
Vintage Municipal Bond Fund Annual Rate of twenty-six one-hundredths of one
percent (0.26%) of Fund's average daily net
assets.
Vintage Balanced Fund Annual Rate of twenty-six one-hundredths of one
percent (0.26%) of Fund's average daily net
assets.
Vintage Equity Fund Annual Rate of twenty-six one-hundredths of one
percent (0.26%) of Fund's average daily net
assets.
Vintage Aggressive Growth Fund Annual Rate of twenty-six one-hundredths of one
percent (0.26%) of Fund's average daily net
assets.
*All fees are computed daily and paid periodically.
As amended February 17, 2000.
FUND ACCOUNTING AGREEMENT
AGREEMENT made this 13th day of February, 1998, between the Vintage Mutual
Funds, Inc., (the"Company"), a Maryland Corporation having its principal place
of business at 2203 Grand Avenue, Des Moines, Iowa 50312-5338, and Investors
Management Group, ("IMG"), a corporation organized under the laws of the State
of Iowa and having its principal place of business at 2203 Grand Avenue, Des
Moines, Iowa 50312-5338.
WHEREAS, the Company desire that IMG perform certain fund accounting
services for each investment portfolio of the Company identified on Schedule A
hereto, as such Schedule shall be amended from time to time (individually
referred to herein as the"Fund" and collectively as the "Funds"); and
WHEREAS, IMG is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual premises and covenants herein
set forth, the parties agree as
follows:
1. Services as Fund Accountant. IMG will keep and maintain the following
books and records of each Fund pursuant to Rule 31a-1 under the
Investment Company Act of 1940 (the "Rule"):
(a) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements
of cash and all other debits and credits, as required by
subsection (b)(1) of the Rule;
(b) General and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including interest
accrued and interest received, as required by subsection
(b)(2)(i) of the Rule;
(c) Separate ledger accounts required by subsection (b)(2)(ii) and
(iii) of the Rule; and
(d) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8) of the
Rule.
In addition to the maintenance of the books and records specified
above, IMG shall perform the following accounting services daily for each
Fund:
(a) Calculate the net asset value per Share;
(b) Calculate the dividend and capital gain distribution, if any;
(c) Calculate the yield;
(d) Reconcile cash movements with the Fund's custodian;
(e) Affirm to the Fund's custodian all portfolio trades and cash
movements;
(f) Verify and reconcile with the Fund's custodian all daily trade
activity;
(g) Provide the following reports:
(i) A current security position report;
(ii) A summary report of transactions and pending maturities
(including the principal, cost, and accrued interest on each
portfolio security in maturity date order); and
(iii)A current cash position report (including cash available
from portfolio sales and maturities and sales of a Fund's
Shares less cash needed for redemptions and settlement of
portfolio purchased);
(h) Such other similar services with respect to a Fund as may be
reasonably requested by the Company.
IMG shall perform the following accounting services for each Fund:
(a) Obtain at least daily for variable net asset value funds and weekly
for money market funds actual dealer quotations, prices from a pricing
service, or matrix prices on all portfolio securities (including those
with less than 60 days to maturity) in order to mark the entire
portfolio to the market; and
(b) Prepare an interim balance sheet, statement of income and expense, and
statement of changes in net assets for the Fund as of each month-end.
2. Subcontracting. IMG may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder;
provided, however, that IMG shall not be relieved of any of its obligations
under this Agreement by the appointment of such sub-contractor and provided
further, that IMG shall be responsible, to the extent provided in Section 7
hereof, for all acts of such sub-contractor as if such acts were its own.
3. Compensation. The Company shall pay IMG for the services to be provided
by IMG under this Agreement in accordance with, and in the manner set forth in,
Schedule A hereto.
4. Reimbursement of Expenses. In addition to paying IMG the fees described
in Section 3 hereof, the Company agrees to reimburse IMG for IMG's out-of-pocket
expenses in providing services hereunder, including without limitation the
following:
A. All freight and other deliver and bonding charges incurred by IMG in
delivering materials to and from the Company;
B. All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by IMG in communication with
the Company, the Company's investment advisor or custodian, dealers or
others as required for IMG to perform the services to be provided
hereunder;
C. Costs of pricing the portfolio securities of each Fund;
D. The cost of microfilm or microfiche of records or other materials; and
E. Any expenses IMG shall incur at the written direction of an officer of
the Company thereunto duly authorized.
5. Effective Date. This Agreement shall become effective with respect to a
Fund as of the date first written above (or, if a particular fund is not in
existence on that date, on the date an amendment to Schedule A to this Agreement
relating to the Fund is executed) ( the "Executed Date").
6. Term. This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, until
December 31, 2000 and thereafter shall be renewed automatically for successive
three year 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, provided, however, that after such termination for so long as IMG,
with the written consent of the Company, in fact continues to perform any one or
more of the service contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due IMG and unpaid by the Company upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
IMG shall be entitled to collect from the Company, in addition to the
compensation described under Section 3 hereof, the amount of all of IMG's cash
disbursements for services in connection with IMG's activities in effecting such
termination, including without limitation, the delivery to the Company and/or
its designees of the Company's property, records, instruments and documents, or
any copies thereof. Subsequent to such termination for a reasonable fee, IMG
will provide the Company with reasonable access to any Company documents or
records remaining in its possession. This Agreement is terminable with respect
to a particular Fund only upon mutual agreement of the parties hereto or for
"cause" (as defined below) by the party alleging "cause", in either case on not
less than 60 days' notice by the Company's Board of Directors or by IMG.
For purposes of this Agreement, "cause" shall mean (a) willful misfeasance,
bad faith, gross negligence or reckless disregard on the part of the party to be
terminated with respect to its obligations and duties set forth herein; (b) a
final, unappealable judicial, regulatory or administrative ruling or order in
which the party to be terminated has been found guilty of criminal or unethical
behavior in the conduct of its business; (c) financial difficulties on the part
of the party to be terminated which is evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent, or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (d) any circumstances which substantially impairs the performance
of the obligations and duties of the party to be terminated, or the ability to
perform those obligations and duties as contemplated herein.
If, for any reason other than "cause" as defined above, IMG is replace as
Fund Accountant, or if a third party is added to perform all or a part of the
services provided by IMG under this Agreement (excluding any sub-accountant
appointed by IMG as provided in Section 2 hereof), then the Company shall make a
one-time cash payment, as liquidated damages, to IMG equal to the balance due
IMG for the remainder of the term of this Agreement, assuming for purposes of
calculation of the payment that the asset level of the Company on the date IMG
is replaces, or a third party is added, will remain constant for the balance of
the contract term.
7. Standard of Care: Reliance on Records and Instruction: Indemnification.
IMG shall use its best efforts to insure the accuracy of all services performed
under this Agreement, but shall not be liable to the Company for any action
taken or omitted by IMG in the absence of bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties. A
Fund agrees to indemnify and hold harmless IMG, its employees, agents,
directors, officers and nominees from and against any and all claims, demands,
actions and suits, whether groundless or otherwise, and from and against any and
all judgments, liabilities, losses, damages, costs, charges, counsel fees and
other expenses of every nature and character arising out of or in any way
relating to IMG's actions taken or nonactions with respect to the performance of
services under this Agreement with respect to such Fund or based, if applicable,
upon reasonable reliance on information, records, instructions or requests with
respect to such Fund given or made to IMG by a duly authorized representative of
the Company; provided that this indemnification shall not apply to actions or
omissions of IMG in cases of its own bad faith, willful misfeasance, negligence
or from reckless disregard by it of its obligations and duties, and further
provided that prior to confessing any claim against it which may be the subject
of this indemnification, IMG shall give the Company written notice of and
reasonable opportunity to defend against said claim in its own name or in the
name of IMG.
8. Records Retention and Confidentiality. IMG shall keep and maintain on
behalf of the Company all books and records which the Company and IMG are, or
may be, required to keep and maintain pursuant to any applicable statutes, rules
and regulations, including without limitation Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"), relating to the
maintenance of books and records in connection with the services to be provided
hereunder. IMG further agrees that all such books and records shall be the
property of the Company and to make such books and records available for
inspection by the Company or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Company and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
9. Uncontrollable Events. IMG assumes no responsibilities hereunder, and
shall not be liable, for any damage, loss of data, delay or any other loss
whatsoever cause by events beyond its reasonable control.
10. Reports. IMG will furnish to the Company and to its properly authorized
auditors, investment advisors, examiners, distributors, dealers, underwriters,
salesmen, insurance companies and others designated by the Company in writing,
such reports and at such times as are prescribed pursuant to the terms and the
conditions of this Agreement to be provided or completed by IMG, or as
subsequently agreed upon by the parties pursuant to an amendment hereto. The
Company agrees to examine each such report or copy promptly and will report or
cause to be reported any errors or discrepancies therein no later than three
business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within three days after conducting a
diligent examination, are not so reports within the aforesaid period of time, a
report will for all purposes be accepted by and binding upon the Company and any
other recipient, and IMG shall have no liability for errors or discrepancies
therein and shall have no further responsibility with respect to such report
except to perform reasonable corrections of such errors and discrepancies within
a reasonable time after requested to do so by the Company.
11. Rights of Ownership. All computer programs and procedures developed to
perform services required to be provided by IMG under this Agreement are the
property of IMG. All records and other data except such computer programs and
procedures are the exclusive property of the Company and all such other records
and data will be furnished to the Company in appropriate form as soon as
practicable after termination of this Agreement for any reason.
12. Return of Records. IMG may at its option at any time, and shall
promptly upon the Company's demand, turn over to the Company and cease to retain
IMG's files, records and documents created and maintained by IMG pursuant to
this Agreement which are no longer needed by IMG in the performance of its
services or for its legal protection. If not so turned over to the Company, such
documents and records will be retained by IMG for six years from the year of
creation. At the end of such six-year period, such records and documents will be
turned over to the Company unless the Company authorizes in writing the
destruction of such records and documents.
13. Representations of the Company. The Company certifies to IMG that: (1)
as of the close of business on the Effective Date, each Fund that is in
existence as of the Effective Date has authorized unlimited shares, and (2) this
Agreement has been duly authorized by the Company and, when executed and
delivered by the Company, will constitute a legal, valid and binding obligation
of the Company, enforceable against the Company, enforceable against the Company
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
14. Representations of IMG. IMG represents and warrants that: (1) the
various procedures and systems which IMG has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
of the records, and other data of the Company and IMG's records, data, equipment
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as are required for the secure performance of its obligations hereunder,
and (2) this Agreement has been duly authorized by IMG and, when executed and
delivered by IMG, will constitute a legal, valid and binding obligation of IMG,
enforceable against IMG in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
15. Insurance. IMG shall notify the Company should any of its insurance
coverage be canceled or reduced. Such notification shall include the date of
change and the reasons therefor. IMG shall notify the Company of any material
claims against it with respect to services performed under this Agreement,
whether or not they may be covered by insurance, and shall notify the Company
from time to time as may be appropriate of the total outstanding claims made by
IMG under its insurance coverage.
16. Information Furnished by the Company and Funds. The Company has
furnished to IMG the following:
A. Copies of the Articles of Incorporation of the Company and of any
amendments thereto, certified by the proper official of the State in
which the Articles has been filed.
B. Copies of the following documents:
1. The Company's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of Directors
covering the approval of this Agreement, authorization of a
specified officer of the Company to execute and deliver this
Agreement and authorization for specified officers of the Company
to instruct IMG thereunder.
C. A list of all the officers of the Company, together with specimen
signatures of those officers who are authorized to instruct IMG in all
matters.
D. Two copies of the following (if such documents are employed by the
Company):
1. Prospectuses and Statements of Additional Information for each
Fund.
17. Information Furnished by IMG. IMG has furnished to the Company the
following:
A. IMG's Articles of Incorporation.
B. IMG's Code of Regulations and any amendments thereto.
C. Certified copies of actions of IMG covering the following
matters:
1. Approval of this Agreement, and authorization of a specified
officer of IMG to execute and deliver this Agreement;
2. Authorization of IMG to act as fund accountant for the
Company and to provide accounting services for the Company.
18. Amendments to Documents. The Company shall furnish IMG written copies
of any amendments to, or changes in, any of the items referred to in Section 16
hereof forthwith upon such amendments or changes becoming effective. In
addition, the Company agrees that no amendments will be made to the Prospectuses
or Statements of Additional Information of the Company which might have the
effect of changing the procedures employed by IMG in providing the services
agreed to hereunder or which amendment might effect the duties of IMG hereunder
unless the Company first obtains IMG's approval of such amendments or changes.
19. Compliance with Law. Except for the obligations of IMG set forth in
Section 8 hereof, the Company assumes full responsibility for the preparation,
contents and distribution of each Prospectus of the Company as to compliance
with all applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the 1940 Act and any other laws, rules and regulations of
governmental authorities having jurisdiction. IMG shall have no obligation to
take cognizance of any laws relating to the sale of the Company's shares. The
Company represents and warrants that no shares of the Company will be offered to
the public until the Company's registration statements under the Securities Act
and the 1940 Act has been declared or becomes effective.
20. Notices. Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to the party required to be served with
such notice, at the following address: 2203 Grand Avenue, Des Moines, Iowa
50312-5338, or at such other address as such party may from time to time specify
in writing to the other party pursuant to this Section.
21. Headings. Paragraph headings in this Agreement are included for
conveniences only and are not to be used to construe or interpret this
Agreement.
22. Assignment. This Agreement and the rights and duties hereunder shall
not be assignable with respect to a Fund by either of the parties hereto except
by the specific written consent of the other party.
23. Governing Law. This Agreement shall be governed by and provisions shall
be construed in accordance with the laws of the State of Iowa.
24. Limitation of Liability of the Directors and Shareholders. The names
"the Vintage Mutual Funds, Inc." and "Directors of the Vintage Mutual Funds,
Inc." refer respectively to the Company created and the Directors, as directors
but not individually or personally. The obligations of the Vintage Mutual Funds,
Inc., entered into in the name or on behalf thereof by any of the Directors,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Directors, Shareholders or representatives of
the Company personally, but bind only the assets of the Company, and all persons
dealing with any series of shares of the Company must look solely to the assets
of the Company belonging to such series for the enforcement of any claims
against the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
Vintage Mutual Funds, Inc.
By:
Title:
Investors Management Group
By:
Title:
Schedule A to the
Fund Accounting Agreement
Between the Vintage Mutual Funds, Inc. and
Investors Management Group
Name of Fund Compensation
Institutional Reserves Fund Annual rate of three one-hundredths of one percent
(0.03%) of the average daily net assets of such
Fund plus IMG's reasonable out-of-pocket expenses
Government Assets Fund incurred in the performance of its services as
provided in Section 4 of the Fund Accounting
Agreement to which this Schedule is attached.
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 amended February 17, 2000.
ADMINISTRATIVE SERVICES PLAN
This Administrative Services Plan (the "Services Plan") is adopted by the
Vintage Mutual Funds, Inc., a Maryland corporation, (the "Company"), on behalf
of each of its Funds (individually, a "Fund" and collectively, the "Funds") set
forth in Schedule 1, as amended from time to time, subject to the following
terms and conditions:
Section 1. Servicing Fees.
Participating Organizations. Each Fund or class thereof, as the case may be
may enter into (A) written agreements in substantially the form attached hereto
as Appendix A or in any other form duly approved by the Board of Directors
("Servicing Agreements") with broker/dealers, banks, investment advisory firms
and other financial institutions ("Participating Organizations") which are
shareholders of record or which have a servicing relationship with the
beneficial owners of a class of the Company's shares ("Shares") of one or more
of the Company's investment portfolios (such portfolios hereinafter individually
called a "Fund" and collectively the "Funds"). Such Servicing Agreements shall
require the Participating Organizations to provide administrative support
services as set forth below and described in the Company's applicable
Prospectuses to their customers who own of record or beneficially Shares in
consideration for a fee, computed daily and paid monthly in the manner set forth
in the Servicing Agreements, at the annual rate of up to 0.25% of the average
daily net asset value of Shares owner of record or beneficially by such
customers. Any bank, trust company, thrift institution, broker-dealer or other
financial institution is eligible to become a Participating Organization and to
receive fees under this Plan.
Adjustment to Fees. Any Fund or Class may pay a service fee ("Service Fee")
to any Participating Organization at a lesser rate than the fees specified in
Section 1 hereof as agreed upon by the Board of Directors and the Participating
Organization and approved in the manner specified in Section 3 of this Services
Plan.
Payment of Fees. The Service Fee will be calculated daily and paid
quarterly by each Fund at the annual rates indicated above. Except as they may
be absorbed by Investors Management Group, Ltd., ("IMG"), investment advisor to
the Company, all expenses incurred by the Company with respect to Shares of a
particular Fund or Class in connection with the Servicing Agreements and the
implementation of this Plan shall be borne entirely by the holders of Shares of
the Fund or Class.
Section 2. Expenses Covered by the Plan.
Service Fees may be paid to Participating Organizations who provide
administrative and support services to their customers who may from time to time
beneficially own shares, which may include, but are not limited to, (i)
establishing and maintaining accounts and records relating to shareholders; (ii)
processing dividend and distribution payments from the Fund on behalf of
shareholders; (iii) periodically providing information to shareholders showing
their positions in shares and integrating such statements with those of other
transactions and balances in shareholders' other accounts serviced by such
financial institution; (iv) arranging for bank wires; (v) responding to
shareholder inquiries relating to the services provided; (vi) responding to
routine inquiries from shareholders concerning their investments; (vii)
providing subaccounting with respect to shares beneficially owned by
shareholders, or the information to the Fund necessary for subaccounting; (viii)
if required by law, forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to shareholders; (ix) assisting in
processing purchase, exchange and redemption requests from shareholders and in
placing such orders with the Funds' service contractors; (x) assisting
shareholders in changing dividend options, account designations and addresses;
(xi) providing shareholders with a service that invests the assets of their
accounts in shares pursuant to specific or pre-authorized instructions; and
(xii) providing such other similar services as the Fund may reasonably request
to the extent the Participating Organization is permitted to do so under
applicable statutes, rules and regulations. Notwithstanding the foregoing, no
Service Fees may be used by a Participating Organization for payments for any
activity by any person which is primarily intended to result in the sale of
shares of any Fund.
Section 3. Approval of Directors.
The Services Plan shall not take effect with respect to the Shares of a
Fund until it has been approved, together with the form of the Servicing
Agreements, by a vote of a majority of the Directors who are not "interested
persons" of the Company (as defined by the Investment Company Act of 1940) and
who have no direct or indirect financial interest in the operation of this
Services Plan or in any agreements related to this Services Plan (the
"Disinterested Directors") cast in person at a meeting called for the purpose of
voting on the Services Plan or such Servicing Agreement provided, however, that
the Services Plan shall not be implemented for a particular Fund prior to the
effective date of the Post-Effective Amendment to the Company's Registration
Statement describing the Services Plan and its implementation with respect to
that Fund.
Section 4. Continuance of the Services Plan.
This Services Plan will continue in effect until February 13, 1999 and
thereafter for successive twelve-month periods, provided, however, that such
continuance is specifically approved at least annually by the Directors of the
affected Fund and by a majority of the Disinterested Directors.
Section 5. Termination.
The Services Plan may be terminated at any time with respect to a Fund or
Class (i) by a majority vote of the Disinterested Directors, or (ii) by a Fund
or Class by the vote of a majority of the outstanding voting securities of such
Fund or Class. The Services Plan may remain in effect with respect to a Fund or
Class even if the Services Plan has been terminated in accordance with this
Section 5 with respect to any other Fund or Class.
Section 6. Amendment.
This Services Plan may be amended at any time with respect to any Fund or
Class by the Board of Directors, provided that any material amendments of the
terms of this Services Plan shall become effective only upon the approvals set
forth in Section 4.
Section 7. Selection of Certain Directors.
While the Services Plan is in effect, the selection and nomination of
Disinterested Directors shall be committed to the discretion of the Company's
Disinterested Directors.
Section 8. Written Reports.
In each year during which the Services Plan remains in effect, a person
authorized to direct the disposition of monies paid or payable by a Fund
pursuant to the Services Plan or any related agreement will prepare and furnish
to the Company's Board of Directors, and the Board will review, at least
quarterly, written reports complying with the requirements of the Rule which set
out the amounts expended under the Plan and the purposes for which those
expenditures were made.
Section 9. Preservation of Materials.
The Company will preserve copies of the Services Plan, any agreement
relating to the Services Plan and any report made pursuant to Section 8 above,
for a period of not less than six years (the first two years in an easily
accessible place) from the date of the Services Plan, agreement or report.
Section 10. Miscellaneous.
The names "Vintage Mutual Funds, Inc." and "Directors of Vintage Mutual
Funds, Inc." refer respectively to the Company created and the Directors, as
directors but not individually or personally, acting from time to time under
Articles of Incorporation dated November 17, 1994, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of the State
of Maryland and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "Vintage Mutual Funds,
Inc." entered into in the name or on behalf thereof by any of the Directors,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Directors, Shareholders or representatives of
the Company personally, but bind only to assets of the Company, and all persons
dealing with any series and/or class of Shares of the Company must look solely
to the assets of the Company belonging to such series and/or class for the
enforcement of any claims against the Company. As used in the Services Plan, the
terms "interested person" and "majority of the outstanding voting securities"
will be deemed to have the same meaning that those terms have under the
Investment Company Act of 1940.
IN WITNESS WHEREOF, the Company executed this Services Plan as of
.
VINTAGE MUTUAL FUNDS, INC.
By:
President
Schedule 1
Administrative Services Plan
Vintage Mutual Funds, Inc.
Maximum
Annual Fee Present
Fund/Class Per Plan Approved Fee
Institutional Reserves 0.25% 0.00%
Government Assets
"S" Shares 0.25% 0.25%
"T" Shares 0.25% 0.00%
Liquid Assets
"S" Shares 0.25% 0.25%
"S2" Shares 0.25% 0.25%
"T" Shares 0.25% 0.15%
Municipal Assets
"S" Shares 0.25% 0.25%
"T" Shares 0.25% 0.15%
Vintage Limited Term 0.25% 0.00%
Vintage Bond 0.25% 0.00%
Vintage Income 0.25% 0.00%
Vintage Municipal Bond 0.25% 0.00%
Vintage Balanced 0.25% 0.00%
Vintage Equity
"S" Shares 0.25% 0.25%
"T" Shares 0.25% 0.00%
Vintage Aggressive Growth 0.25% 0.00%
As amended February 17, 2000.
CONSENT OF INDEPENDENT AUDITOR
We hereby consent to the use of our report dated April 30,1999, on the March 31,
1999 financial statements of the Vintage Mutual Funds., referred to therein,
which is incorporated by reference, in Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A, File No. 33-87498 as filed with the
Securities and Exchange Commission.
McGladrey & Pullen, LLP
New York, New York
February 18, 2000
VINTAGE MUTUAL FUNDS, INC.
DISTRIBUTION & SHAREHOLDER SERVICE PLAN
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN, dated as of April 9, 1998,
of the Vintage Mutual Funds, Inc., a Maryland corporation (hereinafter the
"Company").
W I T N E S S E T H
WHEREAS, the Company, its series (each referred to as a "Fund" or
collectively as "Funds") are engaged in business as open-end management
investment companies and are registered under the Investment Company Act of
1940, as amended (collectively with the rules and regulations promulgated
thereunder, the "1940 Act"); and
WHEREAS, Rule 12b-1 under the Investment Company Act of 1940 ("Rule
12b-1") provides that, except as provided in Rule 12b-1, it shall be unlawful
for any registered open-end management investment company (other than such
company complying with the provisions of Section 10(d) under the Investment
Company Act of 1940 (the "1940 Act")) to act as distributor of securities of
which such company is the issuer, except through an underwriter; and
WHEREAS, Rule 12b-1 provides that a registered open-end management
investment company will be deemed to be acting as a distributor of securities of
which it is the issuer, other than through an underwriter, if it engages
directly or indirectly in financing any activity which is primarily intended to
result in the sale of shares issued by such company, including, but not
necessarily limited to, advertising, compensation of underwriters, dealers and
sales personnel, the printing and mailing of prospectuses to other than current
shareholders, and the printing and mailing of sales literature; and
WHEREAS, the Company has appointed BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("Distributor"), the distributor of the
Funds pursuant to a Distribution Agreement under which the Distributor agrees to
distribute and pay the costs of distributing shares of the Funds (the "Shares"),
and, where applicable, each class of shares ("Class") which Shares shall be
issued in series corresponding to the portfolios of the Funds, in consideration
of all of which the Distributor shall receive fees and reimbursements from the
Funds as provided in the Distribution Agreement; and
WHEREAS, Rule 12b-1 provides that a registered, open-end management
company may act as a distributor of securities of which it is the issuer,
provided that any payments made by such company in connection with such
distribution are made pursuant to a written plan describing all material aspects
of the proposed financing of distribution and that all agreements with any
person relating to implementation of the plan are in writing and provided
further that certain additional conditions are met; and
WHEREAS, the Company recognizes and agrees that (a) the Distributor may
retain the services of broker/dealer firms ("Firms") and other financial
services firms (collectively, "Participating Organizations") to facilitate
purchases and provide other servies to shareholders, (b) the Distributor intends
to compensate each Participating Organization which sells Shares at the rates
set forth in Schedule 1 hereto, as such may be revised from time to time, and
(c) the Distributor may make such payments out of the fee paid to the
Distributor hereunder, its profits or any other source available to it, to the
Participating Organizations for such services; and
WHEREAS, the Board of Directors of the Company and the Shareholders of
the Company have previously adopted various forms of Distribution Plans for the
Company's various Funds and classes of shares of such Funds; and
WHEREAS, the Board of Directors of the Company desire to amend and
restate the various Plans as one plan applicable to each of the Funds and
classes of shares as may be appropriate; and
WHEREAS, such amendment and restatement of the Plans does not effect
any increase in the fees payable under the various Plans nor make any material
changes in the provisions and terms of such Plans; and
WHEREAS, the Board of Directors of the Company, in considering whether
it should adopt and implement this Plan as to the Funds, has evaluated such
information as it deemed necessary to an informed determination as to whether
this Plan should be adopted and implemented and has considered such pertinent
factors as it deemed necessary to form the basis for a decision to use assets of
the Funds for such purposes, and has determined that there is a reasonable
likelihood that the adoption and implementation of this Plan will benefit the
Funds and their shareholders;
NOW, THEREFORE, the Board of Directors of the Company hereby amends and
restates the Distribution Plan for the Funds in accordance with Rule 12b-1, on
the following terms and conditions:
Section 1. Allocation of Responsibilities.
(a) The Company shall be solely responsible for all actions required to
be taken in connection with the offer, sale and distribution of the Shares,
other than such actions as are expressly assumed by the Distributor pursuant to
(1) the terms of this Plan and (2) the Distribution Agreement, which complies
with the provisions of Sections 6 and 7 of this Plan.
(b) The Distributor shall be solely responsible for (1) the
distribution of and payment of the costs of distribution of the Shares, which
costs shall include, by way of example, but not by way of limitation,
compensation paid to registered representatives of the Distributor and to Firms
that have entered into sales agreements with the Distributor, the costs of
preparing, printing and distributing sales literature, the costs of preparing
and running advertisements on radio, television, newspapers or magazines, costs
connected with the use of a "toll-free" telephone number for the Funds and other
distribution-related expenses, but excluding fees and expenses of registering
and qualifying the Funds and the Shares for distribution under federal and state
securities laws; (2) such other responsibilities assumed by the Distributor
pursuant to the Distribution Agreement; and (3) any other responsibilities in
connection with the distribution of the Shares assumed by the Distributor
pursuant to a written agreement which complies with Sections 6 and 7 of this
Plan.
Section 2. Payment of Costs of Distribution.
(a) As long as the Distribution Agreement, or any amendment thereto
complying with Sections 6 and 7 of this Plan, shall remain in effect, as
consideration for all services performed and expenses incurred in the
performance of its obligations under the Distribution Agreement, the Funds shall
pay the Distributor a daily distribution fee payable monthly as provided in
Schedule 1 to the Distribution Agreement as it may be amended from time to time,
provided that the maximum annual fee may not be increased except as provided in
Section 7 of this Plan. Average daily net assets shall be computed in accordance
with the currently effective Prospectus of the Fund.
(b) The Funds understand that agreements between the Distributor and
the Dealers may provide for payment of fees to Dealers to encourage the sale of
Shares and may provide for a portion (which may be all or substantially all) of
the fees payable by the Funds to the Distributor under the Distribution
Agreement to be paid by the Distributor to the Dealers in consideration of the
Dealers' services as dealers of the Shares. The Funds further understand that
the Distributor intends to enter into agreements with Participating
Organizations that are not Dealers. Insofar as Participating Organizations are
not Dealers, they will be compensated under the Plan solely for administrative
and shareholder services for their clients who wish to invest in the Funds. None
of the services provided by such Participating Organizations other than Dealers
will involve the solicitation or sale of Shares of the Fund. Nothing in this
Plan shall be construed as requiring the Funds to make any payment to any
Participating Organization or to have any obligations to any Participating
Organization in connection with services as a dealer of the Shares. The
Distributor shall agree and undertake that any agreement entered into between
the Distributor and any Participating Organization shall provide that such
Participating Organization shall look solely to the Distributor for compensation
for its services thereunder and that in no event shall such Dealer seek any
payment from the Fund.
(c) The Advisor to the Funds may, at its option, make payments from its
own resources to cover the costs of additional distribution activities.
(d) This Plan shall be subject to limitations imposed by the Sales
Charge Rule, unless the Funds, the Distributor or any other person obtain
exemptive relief from the provisions of the Sales Charge Rule of Article III,
Section 26 of the NASD Rules of Fair Practice RE: Regulations by the NASD of
Mutual Fund Asset-Based Sales Charges as described in NASD Notice to Members
90-56.
(e) The Fund shall pay all fees and expenses of any independent
auditor, legal counsel, investment advisor, administrator, transfer agent,
custodian, shareholder servicing agent, registrar or dividend disbursing agent
of the Fund; expenses of distributing and redeeming Shares and servicing
shareholder accounts; expenses of preparing notices, proxy statements and
reports to governmental officers and commissions and to shareholders of the
Fund, except that the Distributor shall be responsible for the expenses of
printing (excluding typesetting) and distributing prospectuses to prospective
shareholders as provided in paragraphs 1 and 2 hereof; expenses connected with
the execution, recording and settlement of portfolio security transaction;
insurance premiums; expenses of shareholder meetings; and expenses relating to
the issuance, registration and qualification of Shares.
Section 3. Portfolio Approvals.
(a) The Funds represent that this Plan, together with the Distribution
Agreement, has been approved by a vote of the Board of Directors of the Company
and of the Directors of the Company who are not interested persons of the Funds,
as defined in Section 2(a)(19) of the 1940 Act and the rules, regulations and
releases relating thereto, and have no direct or indirect financial interest in
the operation of the Plan, or in the Distribution Agreement, or any other
agreement related to the Plan ("Interested Persons"), cast in person at a
meeting called for the purpose of voting on the Plan and the Distribution
Agreement.
(b) In approving the Plan and the Distribution Agreement, the Directors
have undertaken the following:
(1) The Directors have concluded, in the exercise of
reasonable business judgment and in light of their
fiduciary duties under state law and Sections 36(a)
and 36(b) of the 1940 Act, that the Plan will benefit
the Funds and their shareholders.
(2) The Directors have requested and evaluated such
information as was reasonably necessary to an
informed determination of whether the Plan should be
implemented, and, in connection therewith, officials
of the Distributor, as a party to agreements related
to the Plan, have furnished such information
reasonably necessary for the foregoing purposes.
(3) The Directors have considered and given appropriate
weight to all pertinent factors, including, without
limitation, the following:
(A) the need for independent counsel or experts to assist
the Directors in reaching a determination;
(B) the nature of the problems or circumstances which
purportedly make implementation of the Plan necessary
or appropriate;
(C) the causes of such problems or circumstances;
(D) the way in which the Plan would address these problems
or circumstances and how it would be expected to
resolve or alleviate them, including the nature and
approximate amount of the expenditures to the overall
cost structure of the Fund, the nature of the
anticipated benefits and the time it would take for
those benefits to be achieved;
(E) the merits of possible alternative plans;
(F) the interrelationship between the Plan and the
activities of any other person who finances or has
financed distribution of the Shares, including whether
any payments by the Funds to such other person are made
in such a manner as to constitute the indirect
financing of distribution by the Funds; and
(G) the possible benefits of the Plan to any other person
relative to those expected to inure to the Funds.
Section 4. Reports to and Review by the Board of Directors of the Funds.
(a) Any person authorized to direct the disposition of monies paid or
payable by the Funds pursuant to the Plan, the Distribution Agreement or any
other agreement related to the Plan shall provide the Board of Directors of the
Company, and the Board of Directors of the Company shall review, at least
quarterly, a written report of the specific purposes for which such expenditures
were made.
(b) The Distribution Agreement and any other agreement related to the
Plan shall, by their respective terms, provide that appropriate officers of the
Distributor, or any party to such other agreement, shall provide the Directors
of the Company with such information as may be reasonably necessary to the
Directors of the Company for the purposes required by Sections 3(a), 3(b) and
8(d) of this Plan.
Section 5. Selection of Directors.
In connection with the implementation and continuation of the Plan, the
Company hereby undertakes to commit the selection and nomination of Directors of
the Company who are not Interested Persons to a committee comprised of such
Directors who are not such Interested Persons.
Section 6. Concerning the Distribution Agreement and Other Agreements Related to
the Plan.
In addition to the requirements contained in Sections 4(b) and 8 of the
Plan, the Distribution Agreement and any other agreement related to the Plan
shall be in writing and shall provide in substance that such agreement shall be
terminated:
(a) at any time, without the payment of any penalty, by vote of a
majority of the members of the Board of Directors of the Company who are not
Interested Persons or by vote of a majority of the outstanding Shares of the
Funds on not more than sixty (60) days' written notice to the other party
thereto; provided that if a majority of the outstanding Shares of any Fund votes
to terminate this Plan, such termination shall be effective with respect to such
Fund, whether or not the shareholders of any other Fund have voted to terminate
this Plan; and
(b) automatically, in the event of its assignment.
Section 7. Amendments and Modifications.
The Plan, the Distribution Agreement and any other agreement related to
the Plan shall not be amended, modified or superseded except by an agreement in
writing, and, in addition:
(a) may not be amended to increase materially the amount to be spent
for costs of distribution of any Fund, as provided in Section 2 of this Plan,
without the approval of a majority of the outstanding Shares of such Fund
subject to such increase; and
(b) may not be amended in any material manner unless such amendment has
been approved in the manner provided in, and consistent with the procedures
specified by, Sections 3(a), 3(b) and 8(d) of this Plan.
(c) If a majority of the outstanding Shares of any Fund votes to amend
this Plan, such amendment shall be effective with respect to such Fund, whether
or not the Shareholders of any other Fund vote to adopt such amendment.
Section 8. Continuation and Termination.
(a) The Plan shall terminate automatically in the event the shareholder
approval required pursuant to Section 10 is not received.
(b) The Plan, the Distribution Agreement and any other agreement
related to the Plan shall continue in effect for a period of more than one (1)
year from its adoption only as long as the continuance is specifically approved
in the manner described in subsection (d) of this Section 8.
(c) The Plan may be terminated at any time by a majority of the members
of the Board of Directors of the Company who are not Interested Persons or by
vote of a majority of the outstanding Shares of the Funds.
(d) In determining whether the Plan shall be continued or terminated as
provided in Section 8, the Directors of the Company shall make such
determination in the manner provided in, and consistent with the procedures
specified by, Sections 3(a) and 3(b) of this Plan; provided that, in addition to
the factors specified in Section 3(b)(3), the Directors of the Company shall
also consider and give appropriate weight to the following factors:
(1) the effect of the Plan on existing shareholders; and
(2) whether the Plan has, in fact, produced the
anticipated benefits for the Funds and their
shareholders.
Section 9. Preservation of Information.
(a) The Fund shall, for a period of not less than six (6) years, preserve
the following information and documentation:
(1) the Plan;
(2) the Distribution Agreement;
(3) any other agreement related to the Plan;
(4) any report made pursuant to Section 4 of the Plan;and
(5) all minutes which are recorded as a result of the
requirements of Sections 3, 7 or 8 of the Plan and
which relate to the approval, amendment or
continuation of the Plan, the Distribution Agreement
or any other agreement related to the Plan.
(b) With respect to the information and documentation required to be
preserved pursuant to subsection (a) of this Section 9, such information and
documentation shall be preserved in an easily accessible place for a period of
not less than two (2) years.
Section 10. Shareholder Approval and Effective Date.
The effective date of this Plan shall be the date upon which this Plan
is approved by a vote of the holders of at least a majority of the Shares of
each Fund and, where applicable, each Class; provided that, if a majority of the
Shares of any Fund and, where applicable, each Class approves this Plan, it
shall be effective with respect to such approving Fund, whether or not the
Shareholders of any other Fund vote to approve this Plan. Wherever referred to
in this Plan, the vote or approval of the holders of a majority of the
outstanding Shares of the Funds or any Fund shall mean the vote of (a)
sixty-seven percent (67%) of such outstanding Shares present at a meeting if the
holders of more than fifty percent (50%) of such outstanding Shares are present
in person or by proxy or (b) more than fifty percent (50%) of such outstanding
shares, whichever is lesser.
The Plan was last adopted by the Board of Directors on October 30,
1997, and by the Shareholders of each of the series and class as appropriate as
follows:
Fund Class Date of Approval
Government Assets "S" Shares February 13, 1998
Liquid Assets "S" Shares February 13, 1998
Liquid Assets "S2" Shares February 13, 1998
Municipal Assets "S" Shares February 13, 1998
Vintage Limited Term February 13, 1998
Vintage Bond February 13, 1998
Vintage Income February 13, 1998
Vintage Municipal Bond February 13, 1998
Vintage Balanced February 13, 1998
Vintage Equity "T" Shares February 13, 1998
Vintage Equity "S" Shares February 13, 1998
Vintage Aggressive Growth February 13, 1998
Exhibit A
Schedule 1
Distribution Fees
Vintage Mutual Funds, Inc.
Maximum
Annual Fee Present
Fund/Class Per Plan Approved Fee
Institutional Reserves 0.25% 0.00%
Government Assets
"S" Shares 0.25% 0.00%
Liquid Assets
"S" Shares 0.50% 0.40%
"S2" Shares 0.25% 0.15%
Municipal Assets
"S" Shares 0.25% 0.15%
Vintage Limited Term 0.25% 0.00%
Vintage Bond 0.25% 0.00%
Vintage Income 0.25% 0.00%
Vintage Municipal Bond 0.25% 0.00%
Vintage Balanced 0.25% 0.00%
Vintage Equity
"S" Shares 0.25% 0.00%
"T" Shares 0.25% 0.00%
Vintage Aggressive Growth 0.25% 0.00%
As amended February 17, 2000.
