As filed with the Securities and Exchange Commission on August 25, 2005
File No. 333-126832
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
/X/ Pre-Effective Amendment No. 3
/_/ Post-Effective Amendment No. __
ASSET MANAGEMENT FUND
(Exact Name of Registrant as Specified in Charter)
230 WEST MONROE STREET, SUITE 2810
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code: (312) 214-1410
-----------------
ED E. SAMMONS, JR.
PRESIDENT
ASSET MANAGEMENT FUND
230 WEST MONROE STREET, SUITE 2810
CHICAGO, ILLINOIS 60605
(Name and Address of Agent for Service)
Copy to:
CATHY G. O'KELLY
VEDDER, PRICE, KAUFMAN & KAMMHOLZ, P.C.
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601
-----------------
Approximate date of proposed public offering: As soon as practicable
after the effective date of this Registration Statement.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay the effectiveness of the registration
statement until the Registrant shall file a further amendment that specifically
states that this registration statement shall thereafter become effective in
accordance with section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the Commission,
acting pursuant to said section 8(a), may determine.
Title of securities being registered: Units of beneficial interest of
the Registrant.
No filing fee is required because an indefinite number of shares have
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940.
BANK INVESTMENT FUND
75 PARK PLAZA o BOSTON o MASSACHUSETTS 02116-3934
TEL. (617) 695-0415 FAX (617) 695-1464
August 25, 2005
Dear Shareholders:
I am pleased to inform you that the Board of Directors and the
Incorporators of the Bank Investment Fund have approved the reorganization
transaction described in the enclosed Information Statement/Prospectus. Fund One
shareholders will receive shares of AMF Short U.S. Government Fund and Liquidity
Fund shareholders will receive shares of AMF Money Market Fund in reorganization
transactions intended to be tax-free transactions under the Internal Revenue
Code. You do not need to complete any proxy card or take any action to approve
this transaction.
For the past 20 years, the Bank Investment Fund has been pleased to
offer and provide mutual fund investment products to you, our participating and
eligible banks, through Fund One and Liquidity Fund. All of us at the Bank
Investment Fund value the friendships we have made and the business support that
you have provided to us. When the Bank Investment Fund was chartered in 1985
there were few investment options available to community banks in Massachusetts
and the Bank Investment Fund filled that need. We are proud of the contributions
that the Bank Investment Fund has made to the Massachusetts banking community
during its existence.
Our funds have operated for the past 20 years without the use of an
investment adviser, resulting in lower expense ratios for our participating
banks. But investment volume decline in both Fund One and Liquidity Fund, which
began in 2003 and continued to the present, led to increases in the ratios of
expenses to average net assets in 2004 and 2005, despite budget expense
reductions. While investment adviser-managed funds have waived management fees
to reduce shareholder expenses, Bank Investment Fund can only reduce fees by
reducing direct expenses. For the current year, The Co-operative Central Bank
waived its right to receive rent from Bank Investment Fund, reducing direct
expenses further. But even with this concession, expenses charged to Fund One
and Liquidity Fund have continued to increase as a result of declining volume.
For this reason, and for a variety of other reasons, the Board of
Directors of the Bank Investment Fund determined that it would be in the best
interests of Fund One and Liquidity Fund to combine these funds with AMF Short
U.S. Government Fund and AMF Money Market Fund, mutual funds managed by Shay
Assets Management, Inc. Shay Assets Management is a registered investment
adviser that provides investment products to financial institutions. It
currently counts a large number of banks as investors in the mutual funds it
manages. AMF Short U.S. Government Fund and AMF Money Market Fund provide
financial institutions with investments that are comparable to the funds offered
by Bank Investment Fund.
Although AMF Short U.S. Government Fund and AMF Money Market Fund are
comparable to Fund One and Liquidity Fund, there are differences. I urge you to
read carefully the enclosed Information Statement/Prospectus for information
pertaining to the differences between the funds and other important information
relative to your investment in such funds.
Corporate Resolutions and Account Applications, as on file with our
office, will remain applicable for your account transactions processing with AMF
Short U.S. Government Fund and AMF Money Market Fund. Processing purchases and
redemption of shares in either of these funds should, after August 26, 2005 be
directed to Shay Assets Management at 800-527-3713. Please do not hesitate to
call our office at 617-695-0415, Susan Ellis at 617-960-6044 or me at
617-960-6045 should you have any further questions.
Very truly yours,
William F. Casey, Jr.
President, Bank Investment Fund
INFORMATION STATEMENT/PROSPECTUS
AUGUST 25, 2005
RELATING TO THE ACQUISITION OF THE ASSETS OF
FUND ONE AND LIQUIDITY FUND
EACH A FUND OF BANK INVESTMENT FUND
75 PARK PLAZA
BOSTON, MASSACHUSETTS 02116-3934
(617) 695-0415
BY AND IN EXCHANGE FOR SHARES OF SHORT U.S. GOVERNMENT FUND
AND MONEY MARKET FUND, RESPECTIVELY
EACH A SERIES OF ASSET MANAGEMENT FUND
230 WEST MONROE STREET, SUITE 2810
CHICAGO, ILLINOIS 60605
(312) 214-1410
This Information Statement/Prospectus is furnished in connection with
an Agreement and Plan of Reorganization, which is attached hereto as Exhibit A
(the "Reorganization Agreement"), between Bank Investment Fund ("BIF"), on
behalf of its funds Fund One and Liquidity Fund, and Asset Management Fund
("AMF"), on behalf of its series Short U.S. Government Fund and Money Market
Fund. Under the Reorganization Agreement, (1) the assets and stated liabilities
of Fund One will be transferred to, and in exchange for shares of, Short U.S.
Government Fund and the assets and stated liabilities of Liquidity Fund will be
transferred to, and in exchange for Class I Shares of, Money Market Fund; (2)
the shares so received will be distributed to shareholders of Fund One and
Liquidity Fund; and (3) Fund One and Liquidity Fund will be terminated as soon
as practicable thereafter (each, a "Reorganization"). Fund One and Liquidity
Fund are each referred to as an "Acquired Fund" and collectively as the
"Acquired Funds" or "BIF Funds." Short U.S. Government Fund and Money Market
Fund are each referred to as an "Acquiring Fund" and collectively as the
"Acquiring Funds" or "AMF Funds." The Acquired Funds and the Acquiring Funds are
each referred to as a "Fund" and collectively as the "Funds."
This Information Statement/Prospectus sets forth concisely the
information that shareholders of the Acquired Funds should know about the
Reorganizations, and should be retained for future reference. Certain additional
relevant documents listed below, which have been filed with the Securities and
Exchange Commission ("SEC"), are incorporated in whole or in part by reference.
A Statement of Additional Information dated August 25, 2005, relating to this
Information Statement/Prospectus and the Reorganizations and including certain
financial information about the Funds has been filed with the SEC and is
incorporated in its entirety into this Information Statement/Prospectus. A copy
of such Statement of Additional Information is available upon request and
without charge by writing to AMF at 230 W. Monroe Street, Suite 2810, Chicago,
Illinois 60606, or by calling toll-free (800) 527-3713.
No vote of shareholders will be taken with respect to the
Reorganizations. We are not asking you for a proxy and you are requested not to
send us a proxy.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON
THE ADEQUACY OF THIS INFORMATION STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Reorganization Agreement provides that the Acquired Funds will each
transfer all of their assets and stated liabilities to the applicable Acquiring
Fund in exchange for shares of the applicable Acquiring Fund in an amount equal
in value to the aggregate net assets of the applicable Acquired Fund. These
transfers are expected to occur immediately after the close of regular trading
on the New York Stock Exchange (the "Effective Time") on August 26, 2005 (the
"Closing Date").
Immediately after the transfer of each Acquired Fund's assets and
stated liabilities, each Acquired Fund will make a liquidating distribution to
its shareholders of the Acquiring Fund shares received, so that a holder of
shares in an Acquired Fund at the Effective Time of the Reorganization will
receive a number of shares of the corresponding Acquiring Fund with the same
aggregate value as the shareholder had in the Acquired Fund immediately before
the Effective Time. At the Effective Time, shareholders of Fund One will become
shareholders of Short U.S. Government Fund and shareholders of Liquidity Fund
will become shareholders of Money Market Fund. Each Acquired Fund will then be
terminated.
BIF and AMF are each an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
For a more detailed discussion of the investment objective, strategies
and risks of Fund One and Liquidity Fund, see Part A of BIF's registration
statement and statement of additional information dated March 30, 2005, which
have been filed with the SEC and are incorporated by reference into this
Information Statement/Prospectus insofar as they relate to Fund One and
Liquidity Fund. No other parts of Part A of BIF's registration statement or
statement of additional information are incorporated herein. Copies of Part A of
BIF's registration statement and its statement of additional information are
available upon request and without charge by calling BIF at (617) 695-0415 or
AMF at (800) 527-3713.
For a more detailed discussion of the investment objective, strategies
and risks of Short U.S. Government Fund and Money Market Fund, see the Funds'
current prospectus and statement of additional information dated March 1, 2005,
as supplemented, which have been filed with the SEC and are
incorporated by reference into this Information Statement/Prospectus insofar as
they relate to Short U.S. Government Fund and Money Market Fund. No other parts
of the prospectus or statement of additional information are incorporated
herein. A copy of the prospectus for Short U.S. Government Fund and Money Market
Fund accompanies this Information Statement/Prospectus. Copies of the Short U.S.
Government Fund and Money Market Fund statement of additional information are
available upon request and without charge by calling AMF at (800) 527-3713.
ii
TABLE OF CONTENTS
PAGE
Synopsis.......................................................................1
Principal Risks...............................................................13
Investment Advisory Arrangements..............................................14
Information Relating to the Reorganizations...................................14
Federal Income Tax Consequences of the Reorganizations........................15
Capitalization................................................................16
Reasons for the Reorganizations...............................................17
Shareholder Rights............................................................18
Additional Information........................................................20
Shareholder Inquiries.........................................................23
Exhibit A - Form of Agreement and Plan of Reorganization
SYNOPSIS
This Synopsis is designed to allow you to compare the investment
objectives, strategies and restrictions, current fees, purchase, exchange and
redemption procedures and dividend policies of Fund One and Liquidity Fund with
those of Short U.S. Government Fund and Money Market Fund. It is a summary of
certain information contained elsewhere in this Information
Statement/Prospectus, or incorporated by reference into this Information
Statement/Prospectus. Shareholders should read the entire Information
Statement/Prospectus carefully. For more complete information, please read the
enclosed prospectus.
THE REORGANIZATIONS
BACKGROUND. Pursuant to the Reorganization Agreement, the Acquired
Funds will each transfer all of their assets and stated liabilities to the
Acquiring Funds solely in exchange for shares of the applicable Acquiring Fund.
Each Acquired Fund will distribute the shares that it receives to its
shareholders and will then be terminated. The result of the Reorganizations is
that shareholders of Fund One will become shareholders of Short U.S. Government
Fund and shareholders of Liquidity Fund will become shareholders of Money Market
Fund. No sales charges will be imposed in connection with the Reorganizations.
The Board of Directors of BIF, including the Directors who are not
"interested persons" within the meaning of Section 2 (a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act"), considered the Reorganizations
at meetings held on June 16, 2005 and July 18, 2005 and approved them on July
18, 2005. After a review of each Reorganization and for the reasons set forth
below (see "Reasons for the Reorganizations"), the Board has concluded that the
Reorganizations would be in the best interests of each Acquired Fund, and that
the interests of existing shareholders would not be diluted as a result of the
transactions contemplated by the Reorganizations. The Board of Incorporators of
BIF considered the Reorganizations at special meetings held on July 12, 2005 and
July 19, 2005 and aproved them on July 19, 2005.
TAX CONSEQUENCES. Each Reorganization is intended to qualify for U.S.
federal income tax purposes as a tax-free reorganization. If each Reorganization
so qualifies, neither of the Acquired Funds nor their respective shareholders
will recognize gain or loss in the transactions contemplated by such
Reorganization. As a condition to the closing of the Reorganizations, BIF and
AMF will receive an opinion from BIF's counsel to that effect. No tax ruling
from the Internal Revenue Service regarding the Reorganization has been
requested. The opinion of counsel is not binding on the Internal Revenue Service
and does not preclude the Internal Revenue Service from adopting a contrary
position.
BIF AND AMF
BIF is an open-end management investment company, which privately
offers redeemable shares in two different funds. BIF is a corporation organized
effective April 7, 1985 pursuant to a special act of the Commonwealth of
Massachusetts (Massachusetts Acts of 1984, Chapter 482, as amended).
AMF is an open-end management investment company, which publicly offers
redeemable shares in six different series. AMF is a Delaware statutory trust
organized under a Declaration of Trust dated July 22, 1999. AMF was formerly a
Maryland corporation, which commenced operations on November 9, 1982. In
September 1994, the Trust changed its name from Asset Management Fund for
Financial Institutions, Inc. to Asset Management Fund, Inc. and on September 30,
1999, as part of the reorganization into a Delaware statutory trust, changed its
name to Asset Management Fund.
INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS
This section will help you compare the investment objectives, principal
investment strategies and restrictions of each Acquiring Fund with its
corresponding Acquired Fund. Please be aware that this is only a brief
discussion. More complete information may be found in the AMF Funds' prospectus
or Part A of the BIF Funds' registration statement.
FUND ONE AND SHORT U.S. GOVERNMENT FUND
Fund One and Short U.S. Government Fund have a substantially similar
investment objective. Both Funds seek to achieve as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. Short U.S. Government Fund in addition considers the differing
average maturity of investments held by the Fund. While these Funds have
substantially the same investment objective, there are some differences in their
investment strategies.
Short U.S. Government Fund limits its investments and investment
techniques so as to qualify for investment without specific statutory limitation
by national banks, federal savings associations and federal credit unions under
current applicable federal regulations. The Fund invests only in high quality
and variable rate assets (including repurchase agreements collateralized by
obligations of the U.S. Government or other obligations that are not subject to
any investment limitation on the part of national banks) and under normal
circumstances, invests at least 80% of its net assets in U.S. Government
obligations, which consist of obligations issued or guaranteed by the U.S.
Government and its agencies or instrumentalities. Other investments include
eligible bankers' acceptances with maturities of ninety days or less issued by
Federal Deposit Insurance Corporation ("FDIC") insured institutions,
certificates of deposit and other time deposits of FDIC insured depository
institutions. Under normal market and interest rate conditions, Short U.S.
Government Fund seeks to maintain a minimum duration of a 1-Year U.S. Treasury
Note and a maximum duration equal to that of 3-Year U.S. Treasury Note. Short
U.S. Government Fund does not purchase any investments having a risk-based
weighting in excess of 20% under the current risk-based capital regulations
established by the Office of Thrift Supervision. Also, the Fund does not
purchase any investments having a risk-based weighting for banks in excess of
20% under current federal regulations of the appropriate regulatory agencies.
Fund One invests principally in short and intermediate term marketable
debt securities issued by the United States Government or by agencies of the
United States, repurchase agreements, reverse repurchase agreements and money
market instruments. The categories of those securities include, but may not be
limited to (1) certificates of deposit due from any trust company, national
banking association or banking company, (2) bonds and other direct obligations
of the United States or such obligations as are unconditionally guaranteed as to
principal and interest by the United States, (3) federal agency obligations
which have unexpired terms of five years or less, (4) repurchase agreements, and
(5) certain common money market instruments. Unlike Short U.S. Government Fund,
Fund One may enter into reverse repurchase agreements to meet short-term
liquidity needs of the Fund. These agreements may not be in excess of three
Business Days. Fund One also maintains cash on hand and in checking accounts due
from banks.
The fundamental investment policies of Short U.S. Government Fund,
which may not be changed without a shareholder vote, are similar to the
investment restrictions of Fund One. However, there are some differences. Short
U.S. Government Fund may not purchase or sell real estate mortgage loans, real
estate investment trust securities, or oil or gas interests. Fund One, on the
other hand, is authorized to acquire certain real estate mortgage loans and to
acquire real estate for sale or other disposal incidental or necessary to
serving such real estate mortgage loans, although it currently is not exercising
its authority. Fund One's investment policies restrict the Fund from investing
in shares of common or preferred stock or in foreign investments of any kind.
Short U.S. Government Fund does not have a policy with respect
2
to foreign investments but generally does not invest in securities of foreign
issuers. Short U.S. Government Fund may not purchase securities on margin or
make short sales of securities or write put or call options. Fund One does not
have a policy with respect to those investment techniques.
LIQUIDITY FUND AND MONEY MARKET FUND
Liquidity Fund and Money Market Fund have a substantially similar
investment objective. Both Funds seek to achieve as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. Each Fund is managed to keep its share price stable although there is
no assurance that the Fund will be successful in doing so. While these Funds
have substantially the same investment objective and invest in similar types of
securities, there are some differences in their permissible investments.
Money Market Fund limits its investments and investment techniques so
as to qualify for investment without specific statutory limitation by national
banks, federal savings associations and federal credit unions under current
applicable federal regulations. The Fund invests in high quality fixed and
variable rate short-term money market instruments (including assets subject to
repurchase agreements) that are denominated in U.S. dollars and have minimum
credit risk. Permissible investments include obligations issued or guaranteed by
the U.S. Government or issued or guaranteed by an agency or instrumentality of
the U.S. Government, eligible bankers' acceptances with maturities of ninety
days or less issued by FDIC insured institutions, certificates of deposit and
other time deposits of FDIC insured depository institutions.
Liquidity Fund invests principally in short-term marketable debt
securities issued by the U.S. Government or by agencies of the United States,
bank money instruments, repurchase agreements, short-term corporate debt
instruments and commercial paper. Unlike Money Market Fund, Liquidity Fund may
invest in reverse repurchase agreements. Liquidity Fund also maintains cash on
hand and in checking accounts due from banks.
Both Funds seek to maintain a dollar-weighted average maturity of 90
days or less. Money Market Fund limits its investments to those with remaining
maturities of 397 days or less. Liquidity Fund limits its investments to those
with original maturities or remaining maturities of 397 days or less.
The fundamental investment policies of Money Market Fund, which may not
be changed without a shareholder vote, are similar to the investment
restrictions of Liquidity Fund. However, there are some differences. Money
Market Fund may not purchase or sell real estate mortgage loans, real estate
investment trust securities, or oil or gas interests. Liquidity Fund, on the
other hand, is authorized to acquire certain real estate mortgage loans and to
acquire real estate for sale or other disposal incidental or necessary to
serving such real estate mortgage loans, although it currently is not exercising
its authority. Liquidity Fund's investment policies restrict the Fund from
investing in shares of common or preferred stock or in foreign investments of
any kind. Money Market Fund does not have a policy with respect to foreign
investments but generally does not invest in securities of foreign issuers.
Money Market Fund may not purchase securities on margin or make short sales of
securities or write put or call options. Liquidity Fund does not have a policy
with respect to those investment techniques.
3
PERFORMANCE
FUND ONE AND SHORT U.S. GOVERNMENT FUND
The following bar charts and table provide an illustration of how the
performance of Fund One and Short U.S. Government Fund has varied over time. The
bar charts depict the change in performance from year to year during the period
indicated. Each Fund's past performance (before and after taxes) does not
necessarily indicate how the Funds or combined fund will perform in the future.
The bar charts and table assume reinvestment of dividends and distributions.
FUND ONE ANNUAL RETURNS FOR THE
YEARS ENDED DECEMBER 31
[FUND ONE BAR CHART]
ANNUAL RETURN
-------------
1995 12.78%
1996 4.10%
1997 7.12%
1998 6.32%
1999 2.40%
2000 8.59%
2001 6.91%
2002 4.20%
2003 1.58%
2004 0.71%
During the periods shown in the bar chart, the highest return for a
quarter was 4.25% (for the quarter ended June 30, 1995) and the lowest return
for a quarter was 1.20% (for the quarter ended June 30, 2004). The Fund's return
for the quarter ended June 30, 2005 was 0.63%.
4
SHORT U.S. GOVERNMENT FUND
ANNUAL RETURNS FOR THE YEARS ENDED DECEMBER 31
[SHORT U.S. GOVERNMENT BAR CHART]
ANNUAL RETURN
-------------
1995 11.35%
1996 3.61%
1997 6.25%
1998 6.60%
1999 2.38%
2000 7.74%
2001 7.35%
2002 4.63%
2003 1.87%
2004 1.46%
During the periods shown in the bar chart, the highest return for a
quarter was 3.44% (for the quarter ended June 30, 1995) and the lowest return
for a quarter was -1.13% (for the quarter ended June 30, 2004). The Fund's
return for the quarter ended June 30, 2005 was 1.23%.
5
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2004
The following table compares the Funds' average annual returns for the
periods ended December 31, 2004 to broad-based securities market indices (which,
unlike the Funds have no fees or expenses). The table also includes returns for
the six-month period ended June 30, 2005.
FUND SIX MONTHS(1) 1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------- ------------- ------ ------- --------
Fund One
Return Before Taxes...................... 1.94% 0.71% 4.35% 5.41%
Return After Taxes on Distributions(2)... N/A N/A N/A N/A
Return After Taxes on Distributions and
Sale of Fund Shares(2)................ N/A N/A N/A N/A
Short U.S. Government Fund
Return Before Taxes...................... 2.62% 1.46% 4.58% 5.28%
Return After Taxes on Distributions(3)... 1.36% 0.45% 3.00% 3.28%
Return After Taxes on Distributions and
Sale of Fund Shares(3)................ 1.70% 0.94% 2.94% 3.26%
Merrill Lynch Government/Agency 1-3 Index(4) 1.88% 0.99% 5.04% 5.78%
The Lehman Short Government 1-3 Year
Index(5)................................. 1.89% 1.06% 5.11% 5.79%
<FN>
- ---------------------
(1) Returns are for six-month period ended June 30, 2005, annualized.
(2) Because shares of Fund One are only offered to eligible institutional
corporate investors and not available for purchase by individual
investors (see "Shareholder Rights - BIF - Shares" below), computing
after-tax returns using the historical highest individual federal
marginal income tax rates is not applicable.
(3) After-tax returns are calculated using the historical highest
individual federal marginal income tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on an
investor's tax situation and may differ from those shown.
(4) Merrill Lynch Government/Agency 1-3 Index is a broad based market index
of U.S. Government and federal agency securities produced by Merrill
Lynch & Co., Inc. The index reflects no deduction for fees, expenses or
taxes.
(5) The Lehman Short Government 1-3 Year Index is an unmanaged index
generally representative of government and investment-grade corporate
securities with maturities of one to three years. The index reflects no
deduction for fees, expenses or taxes.
</FN>
6
LIQUIDITY FUND AND MONEY MARKET FUND
The following bar charts and table provide an illustration of how the
performance of Liquidity Fund and Money Market Fund has varied over time. The
bar charts depict the change in performance from year to year during the period
indicated. Each Fund's past performance (before and after taxes) does not
necessarily indicate how the Funds or the combined fund will perform in the
future. The bar charts and table assume reinvestment of dividends and
distributions.
LIQUIDITY FUND ANNUAL RETURNS FOR THE
YEARS ENDED DECEMBER 31
[LIQUIDITY BAR CHART]
ANNUAL RETURN
-------------
1995 5.86%
1996 5.38%
1997 5.52%
1998 5.44%
1999 5.00%
2000 6.31%
2001 4.17%
2002 1.85%
2003 1.09%
2004 1.13%
During the periods shown in the bar chart, the highest rate of return
for a quarter was 1.62% (for the quarter ended September 30, 2000) and the
lowest rate of return for a quarter was 0.22% (for the quarter ended March 31,
2004). The Fund's return for the quarter ended June 30, 2005 was 0.62%.
7
MONEY MARKET FUND CLASS I SHARES
ANNUAL RETURNS FOR THE YEARS ENDED DECEMBER 31
[MONEY MARKET FUND BAR CHART]
ANNUAL RETURN
-------------
1995 5.69%
1996 5.19%
1997 5.32%
1998 5.25%
1999 5.04%
2000 6.10%
2001 3.73%
2002 1.42%
2003 0.94%
2004 1.19%
During the periods shown in the bar chart, the highest return for a
quarter was 1.57% (for the quarter ended December 31, 2000) and the lowest
return for a quarter was 0.21% (for the quarter ended June 30, 2004). The Fund's
return for the quarter ended June 30, 2005 was 0.67%.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2004
The following table compares the Funds' average annual returns for the
periods ended December 31, 2004. The table also includes returns for the
six-month period ended June 30, 2005.
FUND SIX MONTHS(1) 1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------- ------------- ------ ------- --------
Liquidity Fund.............................. 2.29% 1.13% 2.89% 4.16%
Money Market Fund, Class I Shares........... 2.48% 1.19% 2.66% 3.97%
<FN>
- ---------------------
(1) Returns are for six-month period ended June 30, 2005, annualized.
</FN>
7-DAY YIELD ENDED ON AUGUST 1, 2005
The following table compares the Funds' 7-day yield ended on August 1,
2005.
FUND 7-DAY YIELD
- -------------------------------------------- -----------
Liquidity Fund.............................. 2.84%
Money Market Fund, Class I Shares........... 3.08%
The Funds' yield fluctuates as a result of numerous factors. Therefore,
the yield stated above is not necessarily representative of the Funds' or
combined fund's future yield. For Fund One's current 7-day yield information,
please call (617) 695-0419. For Money Market Fund's current 7-day yield
information, please call (800) 527-3713.
8
FEES AND EXPENSES
The following comparative fee tables show the fees for each Acquiring
Fund and its corresponding Acquired Fund. The pro forma tables show each
Acquiring Fund's estimated fees after the Reorganization and assumes (based on
assets as of August 16, 2005) at least $38 million in assets transfers to Short
U.S. Government Fund and at least $67 million in assets transfers to Money
Market Fund.
FUND ONE AND SHORT U.S. GOVERNMENT FUND
Shareholders of Fund One and Short U.S. Government Fund do not pay any
sales loads or redemption or exchange fees, but do indirectly bear Annual Fund
Operating Expenses, which vary from year to year.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
FUND ONE SHORT U.S. GOVERNMENT FUND
------------------------------------ ----------------------------------- PRO FORMA-
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SHORT U.S.
JUNE 30, 2005 DECEMBER 31, 2004 APRIL 30, 2005 OCTOBER 31, 2004 GOVERNMENT FUND
---------------- ----------------- ---------------- ---------------- ---------------
Management Fee..................... 0.00% 0.00% 0.25% 0.25% 0.25%
12b-1 Fees......................... 0.02% 0.03% 0.15% 0.15% 0.15%
Other Expenses..................... 0.38% 0.35% 0.09% 0.08% 0.09%
----- ----- ----- ----- -----
Total Fund Operating Expenses...... 0.40% 0.38% 0.49% 0.48% 0.49%
EXAMPLE
This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in a Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The example also assumes that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same as in the last fiscal half year. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------- ------ ------- ------- --------
Fund One........................................... $40.93 $129.18 $226.69 $517.61
Short U.S. Government Fund......................... $50.10 $157.20 $274.16 $615.99
Pro Forma - Short U.S. Government Fund............. $50.10 $157.20 $274.16 $615.99
9
LIQUIDITY FUND AND MONEY MARKET FUND
Shareholders of Liquidity Fund and Money Market Fund do not pay any
sales loads or redemption or exchange fees, but do indirectly bear Annual Fund
Operating Expenses, which vary from year to year.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
LIQUIDITY FUND MONEY MARKET FUND CLASS I SHARES
------------------------------------ ----------------------------------- PRO FORMA - MONEY
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED MARKET FUND
JUNE 30, 2005 DECEMBER 31, 2004 APRIL 30, 2005 OCTOBER 31, 2004 CLASS I SHARES
---------------- ----------------- ---------------- ---------------- -----------------
Management Fee..................... 0.00% 0.00% 0.15%* 0.15%** 0.15%
12b-1 Fees......................... 0.01% 0.01% 0.15%* 0.15%** 0.15%
Other Expenses..................... 0.40% 0.16% 0.16% 0.11% 0.12%
----- ----- ----- ----- -----
Total Fund Operating Expenses...... 0.41% 0.17% 0.46%* 0.41%** 0.42%
<FN>
- ---------------------
* For the six months ended April 30, 2005, the adviser of the AMF Funds
voluntarily waived its entire fee and the distributor of the AMF Funds
voluntarily waived 0.10% of its 12b-1 Fee so that Total Fund Operating
Expenses were 0.21% of average daily net assets. The adviser and
distributor expect to continue to waive fees following the
Reorganization, but were not obligated to do so.
** For the fiscal year ended October 31, 2004, the distributor and adviser
of the AMF Funds voluntarily waived their entire fees so that "Total
Fund Operating Expenses" for the Class I Shares of Money Market Fund
were 0.11% of average daily net assets.
</FN>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in a Fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The example also assumes that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same as in the last fiscal half year. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------- ------ ------- ------- --------
Liquidity Fund............................. $41.95 $132.41 $232.35 $530.55
Money Market Fund, Class I Shares.......... $47.04 $147.64 $257.57 $579.17
Pro Forma - Money Market Fund, Class I
Shares.................................. $42.96 $134.88 $235.41 $529.89
PURCHASE PROCEDURES
BIF FUNDS. Shares of the BIF Funds are currently offered by telephone
to the following eligible investors: Massachusetts Co-operative Banks,
Massachusetts Savings Banks, Massachusetts Trust Companies, Federally Chartered
Savings Banks and Savings and Loan Associations with their principal
10
place of business in Massachusetts, The Co-Operative Central Bank Reserve Fund,
The Savings Bank Life Insurance Company of Massachusetts and the National
Cooperative Bank.
Shares of the BIF Funds are offered for sale on days on which the New
York Stock Exchange is open for business. The BIF Funds and their custodian
observe the following holidays during the calendar year: New Year's Day, Martin
Luther King Day, President's Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. The minimum
initial investment is $50,000. Additional investments may be made in amounts in
excess of the minimum.
The securities market, in which the Funds buy and sell securities,
usually requires immediate settlement in federal funds for all security
transactions; therefore, payment for the purchase of Acquired Fund shares must
be made by federal funds or bank wire, which can be converted immediately into
federal funds. Orders for Fund One received prior to 4:00 p.m., Eastern time,
and orders for Liquidity Fund received prior to 2:00 p.m., Eastern time, will be
invested in shares of the Fund at the next determined net asset value.
Each Fund's net asset value per share is determined by dividing the
value of all investment securities and all other assets, less liabilities, by
the number of shares outstanding. For Fund One, U.S. debt securities are
normally valued on the basis of valuations provided by market makers. Securities
for which market quotations are not readily available are valued at fair value
using methods determined in good faith by or at the direction of BIF's Board of
Directors. Liquidity Fund's securities are valued based on their amortized cost,
which does not take into account unrealized appreciation or depreciation. BIF's
Board of Directors has established procedures reasonably designed to stabilize
the net asset value per share at $1,000.00, although there is no assurance that
the Fund will be able to do so.
AMF FUNDS. Shares of Short U.S. Government Fund and Money Market Fund
may be purchased by telephone. Purchase orders are accepted on any day the
Funds' custodian, The Bank of New York, and the bond market (as determined by
the Bond Market Association) are open for business (a "Business Day") and become
effective upon receipt and acceptance by AMF. Payment must be in the form of
federal funds. Checks are not acceptable. The minimum initial investment in each
Acquiring Fund is $10,000; provided, however, that AMF and its distributor
reserve the right to accept a lesser initial investment in their sole and
absolute discretion. There is no minimum investment balance required. Subsequent
purchases may be made in any amount.
For an investor's purchase of Short U.S. Government Fund shares to be
eligible for same day settlement, the purchase order must be received on a
Business Day before 12:00 p.m., Eastern time, and payment for the purchase order
must be received by The Bank of New York by 4:00 p.m., Eastern time of that day.
For investors seeking next day settlement, the purchase order must be received
on a Business Day before 4:00 p.m., Eastern time, and payment must be received
by The Bank of New York by 4:00 p.m., Eastern time, on the next Business Day
after the purchase order was received.
A purchase order for shares of Money Market Fund must be received on a
Business Day before 3:00 p.m., Eastern time, and payment for the purchase must
be received by The Bank of New York by 4:00 p.m., Eastern time, of that day.
Shares of the AMF Funds are sold at their net asset value next
determined after the purchase order is received. For Short U.S. Government Fund,
the net asset value is determined each Business Day at 4:00 p.m., Eastern time.
For purchase orders for shares of Money Market Fund, net asset value is
determined on each Business Day at 3:00 p.m., Eastern time. Net asset value is
determined by dividing the value of all securities and all other assets, less
liabilities, by the number of shares outstanding. Short U.S. Government Fund's
assets are valued at prices obtained from an independent pricing service or, for
certain securities, the Board of Trustees of AMF has approved the use of a
matrix pricing system
11
developed by the Fund's investment adviser that the Board believes reflects the
fair value of such securities. Money Market Fund's investments are valued in
accordance with Rule 2a-7 under the 1940 Act based on their amortized cost.
AMF's Board of Trustees has established procedures reasonably designed to
stabilize the net asset value per share at $1.00, although there is no assurance
that the Fund will be able to do so.
DIVIDEND POLICIES
BIF FUNDS. The BIF Funds distribute all of their income on a daily
basis. Dividends are declared on each day the Funds are open for business.
Investors receive dividends in additional shares unless they elect to receive
cash. Payment is made in additional shares at the net asset value on the payable
date or in cash, on a monthly basis. Investors wishing to change the method of
receiving dividends must notify the Fund in writing at least one week before
payment is to be made.
AMF FUNDS. For the AMF Funds, dividends are declared daily and paid
monthly. Dividends are declared immediately prior to 4:00 p.m., Eastern time,
for Short U.S. Government Fund and immediately prior to 3:00 p.m., Eastern time,
for Money Market Fund and are automatically reinvested in additional shares of
the respective Fund unless the shareholder requests cash payments by contacting
the Funds' distributor.
EXCHANGE PRIVILEGES
BIF FUNDS. Shareholders may exchange shares of Fund One or Liquidity
Fund for shares of another BIF Fund on the basis of the respective net asset
value of the shares involved. Fund One and Liquidity Fund are the only funds
offered by BIF.
AMF FUNDS. Shareholders may exchange shares of Short U.S. Government
Fund or Money Market Fund for shares of another AMF fund. Exchanges may be made
by mail or telephone. Exchanges will be effected at the relative net asset
values next determined after receipt of an exchange request in proper form. AMF
reserves the right to amend or terminate the exchange privilege without notice
to shareholders.
REDEMPTION PROCEDURES
BIF FUNDS. Shareholders of the BIF Funds may withdraw all or any
portion of their investment by redeeming shares on any day that the Fund is open
for business at the next determined net asset value. Redemption requests must be
received by 4:00 p.m., Eastern time, for Fund One and 2:00 p.m., Eastern time,
for Liquidity Fund to redeem shares that day for payment the following day. The
right of redemption can be suspended and the payment of the redemption proceeds
deferred during any period in which (a) the New York Stock Exchange is closed or
trading on the New York Stock Exchange is restricted or (b) the SEC deems an
emergency to exist, or during any other period permitted by order of the SEC for
the protection of investors.
AMF FUNDS. The AMF Funds redeem shares at their respective net asset
value next determined after the redemption request is received. Redemption
requests may be made on Business Days and can be made by telephone or in
writing.
The net asset value of shares of Short U.S. Government Fund is
determined each Business Day at 4:00 p.m., Eastern time. The time the redemption
request is received determines when proceeds are sent and the accrual of
dividends. Redemption requests received prior to 12:00 p.m., Eastern time, on
Business Days or other day redemptions are permitted are effected on the same
day, immediately after 4:00 p.m., Eastern time. This means that proceeds will
normally be wired in federal funds to the
12
shareholder's bank or other account shown on AMF's records the next Business
Day, but in no case later than seven days.
For Money Market Fund redemptions, net asset value is determined twice
each Business Day, at 12:00 p.m. and 3:00 p.m., Eastern time. If a request is
received before 3:00 p.m., Eastern time, on a Business Day, the proceeds will
normally be wired the same day in federal funds to the shareholder's bank or
other account shown on AMF's records, but in no case later than seven days. If
the request is received after 3:00 p.m., Eastern time, on a Business Day, the
request will be priced and the proceeds will normally be wired the next Business
Day.
PRINCIPAL RISKS
Although the investment objectives, strategies and restrictions of each
Acquired Fund and its corresponding Acquiring Fund are generally similar, there
are certain differences. Therefore, an investment in an Acquiring Fund may
involve investment risks that are different in some respects from those of its
corresponding Acquired Fund. For a more complete discussion of the risks
associated with the Funds, see the respective Funds' prospectus or offering
circular.
SHORT U.S. GOVERNMENT FUND AND FUND ONE. Because the securities in
which Short U.S. Government Fund and Fund One primarily invest include
marketable debt securities issued by the U.S. Government and its agencies or
instrumentalities, an investment in Short U.S. Government Fund is subject to the
same risks as an investment in Fund One. Below is a list of the risks to which
both Funds are subject:
o INTEREST RATE RISK - In general the values of fixed income
securities vary inversely with changes in prevailing interest
rates. With rising interest rates, fixed income securities
held by the Fund tend to decrease in value. Also, securities
with longer durations are usually more sensitive to interest
rate changes.
o PREPAYMENT RISK - The risk that during periods of declining
interest rates, property owners may prepay their mortgages
more quickly than expected thereby reducing the potential
appreciation of fixed, asset-backed securities.
o EXTENSION RISK - The risk that during periods of rising
interest rates, property owners may prepay their mortgages
more slowly than expected, resulting in slower prepayments of
mortgage-backed securities, which increases the duration of a
security and reduces its value.
o CREDIT RISK - The risk that the issuer of a debt security
might not make interest and principal payments on the security
as they become due.
o ISSUER RISK - The risk that a security may lose value due to a
number of factors related to the issuer, such as capital
structure (particularly the issuer's use of leverage),
management performance and a diminished market for the
issuer's products and/or services.
o GOVERNMENT AGENCY RISK - Some obligations issued or guaranteed
by U.S. Government agencies or instrumentalities are not
backed by the full faith and credit of the U.S. Government, in
which case the Funds must look principally to the agencies or
instrumentalities for ultimate repayment and may not be able
to assert claims against the U.S. Government itself if those
agencies or instrumentalities do not meet their commitments.
o MARKET RISK - The value of securities owned by the Funds can
increase or decrease quickly at unexpected times. The value
can change as the result of a number of factors, including
market-wide risks, industry-specific risks or idiosyncratic
risk. A security backed by the U.S. Treasury or the full faith
and credit of the United States is guaranteed as to the timely
payment of interest and principal when held to maturity and
not as to market value. Equity securities generally have
greater price volatility than fixed income securities.
13
o MANAGEMENT RISK - Management risk is the risk that the
techniques and analyses applied by the Fund's portfolio
manager will not achieve the Fund's investment objective.
For temporary or defensive purposes, Short U.S. Government Fund may
invest up to 100% of its assets in U.S. debt securities, including taxable
securities and short-term money market securities. To the extent the Fund takes
such a position, it may not achieve its investment objective. Loss of money is a
risk of investing in either Fund.
LIQUIDITY FUND AND MONEY MARKET FUND. Because both of these Funds
invest in similar types of securities, an investment in Money Market Fund is
subject to many of the same risks as an investment in Liquidity Fund. Both Funds
are subject to interest rate risk, credit risk, issuer risk, government agency
risk, market risk and management risk described above.
Although each Fund seeks to maintain a stable net asset value per
share, there is no assurance that the Fund will be successful in doing so. The
Funds' shares are not insured or guaranteed by the FDIC or any other
governmental agency.
INVESTMENT ADVISORY ARRANGEMENTS
BIF FUNDS. BIF presently does not employ the services of any investment
advisory or management services company to manage the assets of the BIF Funds.
Investment decisions for the BIF Funds are made by authorized officers of BIF
pursuant to authority delegated by BIF's Board of Directors.
AMF FUNDS. Investment decisions for the AMF Funds are made by Shay
Assets Management, Inc. ("Shay"), a company controlled by Rodger D. Shay, a
Trustee of AMF. Shay, which is located at 230 West Monroe Street, Suite 2810,
Chicago, Illinois 60606, is registered under the Investment Advisers Act of 1940
and managed, as of June 30, 2005, approximately $3.7 billion in assets. Shay is
responsible for placing for the AMF Funds purchase and sale orders for portfolio
instruments.
The Acquiring Funds pay an annual advisory fee based upon a percentage
of average daily net assets to Shay. For the year ended October 31, 2004, the
advisory fee paid to Shay with respect to the AMF Funds was as follows:
ACQUIRING FUND FEE
- ------------------------------------------------- -------
Short U.S. Government Fund....................... 0.25%
Money Market Fund................................ 0.00%(1)
- ---------------------------------
(1) Shay voluntarily waived its entire advisory fee with respect to Money
Market Fund. Without such waiver, the fee would have been 0.15%.
INFORMATION RELATING TO THE REORGANIZATIONS
DESCRIPTION OF THE REORGANIZATIONS. The following summary is qualified
in its entirety by reference to the Reorganization Agreement, which is attached
hereto as Exhibit A.
The Reorganization Agreement provides that all of the assets and stated
liabilities of each Acquired Fund will be transferred to the corresponding
Acquiring Fund at the Effective Time on the Closing Date. In exchange for the
transfer of these assets and stated liabilities, each Acquiring Fund will
simultaneously issue at the Effective Time on the Closing Date a number of full
and fractional shares to
14
its corresponding Acquired Fund, equal in value to the aggregate net asset value
of the Acquired Fund, calculated based on the value of each Acquired Fund's
assets as of the Effective Time on the Closing Date after the declaration and
payment of any dividends.
Following the transfer of assets and stated liabilities in exchange for
Acquiring Fund shares, each Acquired Fund will distribute all the shares of the
corresponding Acquiring Fund pro rata to its shareholders of record in complete
liquidation. Shareholders of each Acquired Fund owning shares at the Effective
Time will receive a number of shares of the corresponding Acquiring Fund with
the same aggregate value as the shareholder had in the Acquired Fund immediately
before the Reorganization. Such distribution will be accomplished by the
establishment of accounts in the names of the Acquired Fund's shareholders on
the share records of the Acquiring Fund's transfer agent. Each account will
receive the respective pro rata number of full and fractional shares of the
Acquiring Fund due to the shareholders of the corresponding Acquired Fund. Each
Acquired Fund then will be terminated. The Funds do not issue share certificates
to shareholders.
The Reorganization Agreement contains customary representations,
warranties and conditions. The Reorganization Agreement provides that the
consummation of the Reorganizations is conditioned upon, among other things, the
receipt by BIF and AMF of a tax opinion to the effect that the Reorganizations
will be tax-free to the Funds and their shareholders. The Reorganization
Agreement may be terminated by mutual agreement of the parties or if, before the
Closing Date, any of the required conditions have not been met or the
representations and warranties are not true.
COSTS OF REORGANIZATIONS. The expenses of BIF in connection with the
Reorganizations are estimated at $90,000. Shay (or an affiliate) will pay BIF's
legal fees and audit fees in connection with the Reorganizations up to a maximum
of $70,000 if the transactions provided for in the Reorganization Agreement are
consummated. The BIF Board of Directors approved the payment by the Acquired
Funds of any expenses in excess of the amount to be paid by Shay. Such expenses
will be allocated to the Acquired Funds pro rata based on the net assets of the
Acquired Funds.
The expenses of the Acquiring Funds in connection with the
Reorganizations are expected to be $110,000 or less. On July 21, 2005, the AMF
Board of Trustees approved the payment by the Acquiring Funds of legitimate fund
expenses and the Board is expected to make a final determination on the actual
amount allowed at a later date. Expenses of the Acquiring Funds not approved by
the Board of Trustees will be paid by Shay (or an affiliate). Any expenses paid
by the Acquiring Funds will be allocated pro rata on the basis of the Acquiring
Funds' net assets.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
The Reorganizations are intended to qualify for U.S. federal income tax
purposes as separate tax-free reorganizations under Section 368(a) of the
Internal Revenue Code of 1986, as amended. If so, neither of the Acquired Funds
nor their respective shareholders will recognize gain or loss as a result of the
Reorganizations; the tax basis of the Acquiring Fund shares received by
shareholders will be the same as the basis of the Acquired Fund shares exchanged
therefor; and the holding period of the Acquiring Fund shares received will
include the holding period of the Acquired Fund shares exchanged therefor,
provided that the shares exchanged were held as capital assets at the time of
the relevant Reorganization. As a condition to the closing of the
Reorganization, BIF and AMF will receive an opinion from counsel to BIF to that
effect. Shares held for the purpose of investment are generally considered to be
capital assets. No tax ruling from the Internal Revenue Service regarding the
Reorganization has been requested. The opinion of counsel is not binding on the
Internal Revenue Service and does not preclude the Internal Revenue Service from
adopting a contrary position.
15
As of December 31, 2004, Fund One had $128,714 of unutilized capital
loss carryforwards and Liquidity Fund had $181,035 of unutilized capital loss
carryforwards. As of October 31, 2004, Short U.S. Government Fund had $1,966,497
of unutilized capital loss carryforwards and Money Market Fund had $14,744 of
unutilized capital loss carryforwards. After and as a result of the
Reorganizations, the capital loss carryforwards may be subject to limitations
under applicable tax laws on the rate at which they may be used to offset future
net capital gains of the relevant Acquiring Fund. As a result, some of the
capital loss carryforwards may expire unutilized.
THE SALE OF SECURITIES BY THE ACQUIRED FUNDS BEFORE THE
REORGANIZATIONS, WHETHER IN THE ORDINARY COURSE OF BUSINESS OR IN ANTICIPATION
OF THE REORGANIZATIONS, COULD RESULT IN A TAXABLE CAPITAL GAINS DISTRIBUTION
BEFORE THE REORGANIZATIONS. THE PRECEDING IS ONLY A GENERAL SUMMARY OF CERTAIN
U.S. FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS OF THE FUNDS. SHAREHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE POTENTIAL TAX CONSEQUENCES
OF THE REORGANIZATIONS TO THEM, INCLUDING FOREIGN, STATE AND LOCAL TAX
CONSEQUENCES.
CAPITALIZATION
The following table sets forth: (i) the unaudited capitalization of
each Acquiring Fund as of June 30, 2005; (ii) the unaudited capitalization of
each Acquired Fund as of June 30, 2005; and (iii) the unaudited pro forma
combined capitalization of the Acquiring Funds assuming the Reorganizations have
taken place. The capitalizations are likely to be different on the Closing Date
as a result of daily share purchase and redemption activity.
NET ASSET VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
- --------------------------------------------------- ---------- --------------- -----------
Fund One........................................... $38,493,803.53 $977.12 39,395.07
Short U.S. Government Fund ........................ $141,050,361.57 $10.49 13,451,060.18
- -------------------------------------------------------------------------------------------------------------------
Adjustment for Reorganization Costs(1)............. (34,343.00)
Pro Forma - Short U.S. Government Fund............. $179,509,822.10 $10.49 17,120,631.54
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Liquidity Fund .................................... $78,135,232.30 $1,000.00 78,135.23
Money Market Fund - Class I........................ $33,400,908.04 $1.00 33,412,428.23
Money Market Fund - Class D........................ $18,311,463.60 $1.00 18,311,893.45
- -------------------------------------------------------------------------------------------------------------------
Adjustment for Reorganization Costs - Class I(1)... (35,239.54)
Adjustment for Reorganization Costs - Class D(1)... (19,319.46)
- -------------------------------------------------------------------------------------------------------------------
Pro Forma - Money Market Fund - Class I............ $111,500,900.80 $1.00 111,547,660.53
Pro Forma - Money Market Fund - Class D............ $18,292,144.14 $1.00 18,311,893.45
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) The reorganization costs of the Acquired Funds are estimated at
$90,000. $70,000 of these costs are expected to be paid by Shay. The
remaining $20,000 will be paid by the Acquired Funds and allocated to
the Acquired Funds pro rata on the basis of net assets. The
reorganization costs of the Acquiring Funds are expected to be $110,000
or less. On July 21, 2005, the AMF Board of Trustees approved the
payment by the Acquiring Funds of legitimate fund expenses and the
Board is expected to make a final determination on the actual amount
allowed at a later date. Any expenses not approved by the Board will be
paid by Shay. Any reorganization costs paid by the Acquiring Funds will
be allocated pro rata on the basis of net assets. The above table
assumes that the Acquiring Funds' costs in connection with the
Reorganizations are the $110,000 estimated costs. The above table
further reflects a limitation agreed to by Shay that Shay will bear any
reorganization costs of a Fund that would cause a reduction in the
Fund's net asset value per share based upon the figures provided in the
above capitalization table. Based upon the figures in the above
capitalization table, $41,098 of the Short U.S. Government Fund's
reorganization costs would be reimbursed by Shay.
</FN>
16
REASONS FOR THE REORGANIZATIONS
The Board of Directors of BIF believe that the proposed Reorganizations
are in the best interests of the Acquired Funds. The Directors considered the
following matters, among others, in approving the proposal. To reduce expenses
for the current year, BIF is relying upon The Co-operative Central Bank's (the
"Central Bank") waiver of its right to receive rent under a sublease. The
Central Bank has indicated that it will discontinue such arrangement with BIF in
the future. This will result in either BIF increasing expenses charged to
shareholders or liquidating the Acquired Funds. Either strategy would result in
increased expenses or possibly losses to shareholders.
BIF utilizes a self-managed structure that the Directors concluded may
not be beneficial to investors in the future. BIF's officers work in a part-time
capacity for BIF. BIF does not employ a full-time portfolio manager or
investment advisory staff. Although BIF has been successful with its operating
plan in the past, as the mutual fund industry has matured and competition has
increased, it appears that this plan may not be effective in the future. Over
the past year, BIF has been challenged to produce returns that are competitive
with the returns on other investments available to bank investors such as
investors in BIF. Accordingly, the Board considered that having full-time
portfolio management and an investment adviser as a result of the
Reorganizations would be more beneficial to investors in the Acquired Funds than
continuing a self-managed fund.
At a special meeting held on January 3, 2005, the Board of Directors of
BIF determined that it would be in the best interests of investors in the
Acquired Funds to pursue strategic options, including reorganizations involving
the Acquired Funds. At its February 17, 2005 meeting, the Board of Directors of
BIF considered proposals from AMF's investment adviser and another mutual fund's
investment adviser. On March 1, 2005 BIF retained the services of a consultant
(on a fixed retainer basis) to perform an appraisal and solicit proposals from
other potential acquirors. The consultant issued an appraisal of the Acquired
Funds on March 14, 2005 and provided BIF with proposals from other potential
acquirors. Some of the proposals proved unworkable due to BIF's unique
structure. The AMF's adviser proposal was ultimately selected because the
consideration offered fell within the parameters set forth in the appraisal, it
provided for the payment of certain transaction expenses by AMF's investment
adviser, it provided for a tax-free reorganization structure, and it did not
require third party indemnification. Thus, in the judgment of the Board of
Directors of BIF, the reorganization into AMF represented the best option
available for shareholders of the Acquired Funds.
The Board of Directors of BIF, including the Directors who are not
"interested persons" within the meaning of Section 2 (a)(19) of the 1940 Act,
considered the Reorganizations at meetings held on June 16, 2005 and July 18,
2005 and approved them on July 18, 2005. After a review of each Reorganization
and for the reasons set forth below, the Board has concluded that the
Reorganizations would be in the best interests of each Acquired Fund, and that
the interests of existing shareholders would not be diluted as a result of the
transactions contemplated by the Reorganizations. The Board of Incorporators of
BIF considered the Reorganizations at special meetings held on July 12, 2005 and
July 19, 2005 and approved them on July 19, 2005.
The Board considered that the historical investment performance of the
Acquiring Funds is comparable to the Acquired Fund's investment performance. In
addition, the Board considered the track record of Shay in managing mutual funds
suitable for investment by depository institutions. Although the expenses
charged by the Acquiring Funds are slightly higher than those currently charged
by the Acquired Funds, the Board determined that it is unlikely that the
Acquired Funds could continue to operate at their current or past levels of
expenses. BIF was able to reduce expenses charged to shareholders as a result of
a rent waiver from the Central Bank and reductions in employment costs. The
President of BIF does not collect a salary from BIF, which is one factor that
has kept BIF's expenses low.
17
BIF has also aggressively cut its expenditures over the past year by reducing
salaries and staffing levels. However, the Central Bank has indicated that it
will be unwilling to waive its right to receive rent in the future. Furthermore,
it is unlikely that BIF could retain officers to serve as successors to current
officers at the levels of compensation currently paid. Finally, the increased
asset base of Money Market Fund as a result of the acquisition of the assets of
Liquidity Fund is expected to reduce the level of expenses (as a percentage of
average net assets) charged to Money Market Fund. Accordingly, the Board
considered that the expenses charged by the Acquiring Funds in the future are
likely to be lower than the expenses that would be charged by the Acquired Funds
if the Acquired Funds were to continue operations.
In addition, shares of the Acquiring Funds received in each
Reorganization will provide Acquired Fund shareholders with an investment
product with similar investment objectives and strategies as the Acquired Funds.
The transactions also will be structured to qualify as tax-free reorganizations
under Section 368(a) of the Internal Revenue Code of 1986 and therefore will not
be treated as a taxable sale of Acquired Fund shares.
SHAREHOLDER RIGHTS
AMF
GENERAL. AMF is an open-end management investment company established
as a Delaware statutory trust pursuant to the Declaration of Trust. The Trust is
also governed by its By-Laws and applicable Delaware state law.
SHARES. AMF is authorized to issue an unlimited number of shares of
beneficial interest from an unlimited number of series of shares. Currently, AMF
consists of six separate investment series. The Board of Trustees has the
authority to divide the shares of a series of AMF into classes. Money Market
Fund is currently the only series of AMF with two classes - Class I and Class D.
Shareholders of Liquidity Fund will receive Class I Shares of Money Market Fund
in the Reorganization. All shares of beneficial interest of the same series and
class have equal dividend, distribution, liquidation and voting rights and are
redeemable at net asset value, at the option of the shareholder. In addition,
the shares have no preemptive, subscription or conversion rights and are freely
transferable.
VOTING RIGHTS. On any matter submitted to a vote of AMF shareholders,
all shares entitled to vote generally vote together as a single group, except
where a separate vote is required or permitted by law or where the matter to be
voted on affects only the interests of one or more affected series or classes.
SHAREHOLDER MEETINGS. AMF is not required to and does not hold annual
meetings of shareholders, but may hold special meetings of shareholders under
certain circumstances. A special meeting of shareholders may be called at any
time by the Board of Trustees, the President or on the written request of
shareholders owning at least one-tenth of the outstanding shares entitled to
vote.
ELECTION AND TERM OF TRUSTEES. AMF is managed by the Board of Trustees
under the laws governing Delaware statutory trusts. Subject to the 1940 Act
requirements, Trustees may be elected by shareholders or appointed by the Board
of Trustees in accordance with AMF's Declaration of Trust. Under AMF's
Declaration of Trust, Trustees hold office during the lifetime of AMF and until
its termination, or until their successors are duly elected and qualified, or
until their earlier resignation or removal. A Trustee may be removed at any time
by an action of at least 80% (two-thirds with cause) of the remaining Trustees
or with or without cause by a vote of shareholders owning at least two-thirds of
the outstanding shares.
18
SHAREHOLDER LIABILITY. Pursuant to Delaware state law and AMF's
Declaration of Trust, shareholders of AMF funds generally are not personally
liable for the acts, omissions or obligations of the Trustees or AMF.
TRUSTEE LIABILITY. Pursuant to Delaware state law and AMF's Declaration
of Trust, Trustees are not personally liable to any person other than AMF and
its shareholders for any act, omission or obligation of AMF or another Trustee.
Pursuant to the Trust's Declaration of Trust, Trustees are not personally liable
for any act or omission they take while acting as a Trustee or for any act or
omission of any other person or party, except that Trustees are not protected
against liability to the Trust or to shareholders resulting from their willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved as a Trustee. The Trust generally indemnifies Trustees against all
liabilities and expenses incurred by reason of being a Trustee, except for
liabilities and expenses arising from the Trustee's bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties as a
Trustee.
BIF
GENERAL. BIF is an open-end management investment company. BIF was
organized as a corporation pursuant to a special act of the Commonwealth of
Massachusetts (Massachusetts Acts of 1984, Chapter 482, as amended).
SHARES. BIF's Charter permits the Board of Directors to issue an
unlimited number of full and fractional shares of beneficial interest (no par,
non-voting, with a stated value of $1,000 per share). Currently, BIF's shares of
beneficial interest are divided into two classes, Fund One and Liquidity Fund.
Each share within each such class is equal in every respect to every other share
of that class. All shares of beneficial interest within each such class have
equal dividend, distribution and liquidation rights. In addition, the shares
have no preemptive or conversion rights.
Under BIF's Charter, its shares may not be issued to any persons other
than Massachusetts co-operative banks, Massachusetts savings banks, the
Co-operative Banks Employees Retirement Association, the Central Bank, The
Savings Bank Life Insurance Company of Massachusetts, the National Consumer
Co-operative Bank, Massachusetts trust companies, credit unions incorporated in
Massachusetts and federally chartered credit unions, savings banks and savings
and loan associations with their principal places of business in Massachusetts
and affiliates of eligible investors. Notwithstanding these Charter provisions,
BIF is not currently offering its shares to any credit unions or the
Co-operative Banks Employees Retirement Association, nor is it offering its
shares to any affiliate of an eligible investor other than a wholly-owned
subsidiary of an otherwise eligible investor. Moreover, shares of Liquidity Fund
are not being offered to any affiliate of any eligible investor, but rather are
offered to eligible banking institutions only. BIF's shares may not be
transferred by eligible investors to any persons other than such eligible
investors (except that the shares may be pledged to such other persons by such
investors, or may be transferred to the Central Bank, which is the statutory
reserve bank and insurer of deposits in excess of Federal deposit insurance
limitations for Massachusetts chartered co-operative banks).
VOTING RIGHTS. The legislation authorizing BIF does not provide for
shareholder voting rights, and the SEC has granted BIF exemptive relief from the
voting provisions of the 1940 Act. The shares of beneficial interest in BIF do
not provide holders of such shares with any voting rights. The right to elect
BIF's Board of Directors is vested in BIF's incorporators, who are the directors
of the Central Bank.
SHAREHOLDER MEETINGS. The legislation authorizing BIF does not provide
for shareholder voting rights and BIF does not hold annual meetings of
shareholders.
19
ELECTION AND TERM OF DIRECTORS. The business of BIF is conducted by a
Board of Directors elected by BIF's incorporators. Under BIF's charter, only
officers and directors of co-operative banks are eligible for election to the
Board of Directors. The Board of Directors is divided into three classes. Each
class is elected once every three years at an annual meeting of the
incorporators. At least one class is elected each year by the incorporators.
Directors may be removed by a vote of the incorporators.
SHAREHOLDER LIABILITY. The legislation authorizing BIF does not provide
for personal liability of shareholders.
DIRECTOR LIABILITY. The legislation authorizing BIF provides that a
director of BIF is not individually liable for anything done or for any
liability incurred or assumed by virtue of such legislation except by reason of
such directors' own willful malfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such directors' office.
MATERIAL DIFFERENCES IN SHAREHOLDER RIGHTS
Material differences between shareholder rights of BIF and AMF exist
with respect to voting rights and transferability. Shareholders of AMF have
voting rights while shareholders of BIF do not. With respect to transferability,
shareholders of BIF may, with limited exceptions, transfer their shares only to
eligible investors, while AMF offers shares publicly and shareholders may freely
transfer their shares.
THE FOREGOING IS ONLY A SUMMARY OF CERTAIN RIGHTS OF SHAREHOLDERS OF
THE FUNDS AND IS NOT A COMPLETE DESCRIPTION OF PROVISIONS CONTAINED IN BIF AND
AMF'S GOVERNING CHARTER DOCUMENTS AND BY-LAWS AND STATE LAW. SHAREHOLDERS SHOULD
REFER TO THE PROVISIONS OF THOSE DOCUMENTS AND STATE LAW DIRECTLY FOR A MORE
THOROUGH DESCRIPTION.
ADDITIONAL INFORMATION
Information concerning the operation and management of Short U.S.
Government Fund and Money Market Fund is included in the Funds' current
prospectus, which is incorporated herein by reference and a copy of which
accompanies this Information Statement/Prospectus. Additional information about
Short U.S. Government Fund and Money Market Fund is included in the Funds'
Statement of Additional Information dated March 1, 2005, as supplemented, which
is available upon request and without charge by calling (800) 527-3713.
Information about Fund One and Liquidity Fund is included in Part A of
the Funds' registration statement dated March 30, 2005, which is incorporated
herein by reference insofar as it relates to Fund One and Liquidity Fund.
Additional information about Fund One and Liquidity Fund is included in the
Funds' Statement of Additional Information dated March 30, 2005, which is
available upon request and without charge by calling (617) 695-0415.
The Funds are subject to the informational requirements of the 1940 Act
and the AMF Funds are subject to the informational requirements of the
Securities Exchange Act of 1934. In accordance therewith, the Funds file reports
and other information, including proxy material (to the extent applicable) and
charter documents, with the SEC. These items may be inspected and copied at the
Public Reference Facilities maintained by the SEC at 100 F Street, N.E., Room
1580, Washington, D.C. 20549 and at the SEC's regional offices in New York at 3
World Financial Center, Room 4300, New York, New York 10281, and in Chicago at
175 West Jackson Boulevard, Suite 900, Chicago, Illinois 60604. Copies of such
items can be obtained from the Public Reference Branch, Office of Consumer
Affairs, SEC, Washington, D.C. 20549 at prescribed rates.
20
INTEREST OF CERTAIN PERSONS IN THE REORGANIZATIONS. Shay may be deemed
to have an interest in the Reorganizations because it provides and will provide
investment advisory services to the Acquiring Funds pursuant to advisory
agreements with the Acquiring Funds. Future growth of the Acquiring Funds can be
expected to increase the total amount of fees payable to Shay.
William F. Casey, Jr., an officer of BIF, and BIF Services, LLC, a
limited liability company wholly-owned by Mr. Casey, also may be deemed to have
an interest in the Reorganizations. Pursuant to an administrative service
agreement between Shay Financial Services, Inc., the distributor of AMF, and BIF
Services, LLC, to be entered into at the time of the closing of the
Reorganizations, BIF Services, LLC will provide administrative services for a
fee equal to 0.05% and 0.025% of the aggregate average daily net asset value of
the shares of Short U.S. Government Fund and Money Market Fund, respectively,
held by certain Massachusetts banks invested in the Acquiring Funds. The amount
of the fee received by BIF Services, LLC is affected by the value of the
Acquiring Fund shares held by shareholders of the
Acquired Funds following the Reorganizations. Neither BIF nor the Central Bank
will be involved with, or receive any benefit from (except in the Central Bank's
position as a shareholder in Fund One) the provision of such services.
BIF and three of its officers, Mr. Casey, Susan L. Ellis and Annemarie
Lee, will each enter into a non-compete agreement with Shay at the time of the
closing of the Reorganizations. Under the agreement, BIF and the three officers
agree not to act as or render services to an investment adviser, investment
sub-adviser, principal underwriter or distributor of any open-end or closed-end
investment company registered under the 1940 Act that markets itself for
investment by banks, savings associations or credit unions anywhere in the
United States of America, or otherwise be involved in the investment management,
underwriting or distributing of any such investment company if the
Reorganizations are consummated. In exchange, BIF and the three officers will
each receive $2,500.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BIF FUNDS. As of August 1, 2005, the officers and Directors of BIF as
a group, did not beneficially own any of the outstanding shares of either of the
BIF Funds. The following table provides certain information as of August 1,
2005 with respect to persons known to BIF to be beneficial and record owners of
5% or more of the shares of each of the BIF Funds. The table also indicates the
estimated percentage of the Acquiring Fund's shares to be owned by such persons
upon the consummation of the Reorganizations on the basis of present holdings
and commitments.
PRO FORMA-
NUMBER OF PERCENTAGE PERCENTAGE
NAME AND ADDRESS SHARES OWNERSHIP OWNERSHIP
- ----------------------------------- --------- ---------- -----------
FUND ONE
Easthampton Savings Bank/ 5,567.6184 14.47% 3.17%
ESB Securities Corp.
Easthampton, Massachusetts
Co-operative Central Bank 4,875.1651 12.67% 2.78%
Boston, Massachusetts
North Cambridge Co-operative Bank 4,005.0639 10.41% 2.28%
Cambridge, Massachusetts
North Brookfield Savings Bank 4,006.8890 10.41% 2.28%
North Brookfield, Massachusetts
21
PRO FORMA-
NUMBER OF PERCENTAGE PERCENTAGE
NAME AND ADDRESS SHARES OWNERSHIP OWNERSHIP
- ----------------------------------- --------- ---------- -----------
Braintree Co-operative Bank 2,985.8633 7.76% 1.70%
Braintree, Massachusetts
Randolph Savings Bank 2,182.1786 5.67% 1.24%
Randolph, Massachusetts
Bank of Canton/ 2,023.0895 5.26% 1.15%
Greenlodge Corporation
Canton, Massachusetts
Savers Bank 1,985.9334 5.16% 1.13%
Southbridge, Massachusetts
LIQUIDITY FUND
Butler Bank 7,767.1658 11.30% 7.50%
Lowell, Massachusetts
Ben Franklin Bank 5,328.3020 7.75% 5.14%
Franklin, Massachusetts
Easthampton Savings Bank/ 5,072.0080 7.38% 4.90%
ESB Securities Corp.
Easthampton, Massachusetts
Cape Ann Savings Bank 5,000.0000 7.27% 4.83%
Gloucester, Massachusetts
East Cambridge Savings Bank 4,672.2000 6.80% 4.51%
Cambridge, Massachusetts
Haverhill Bank 4,352.5092 6.33% 4.20%
Haverhill, Massachusetts
North Cambridge Co-operative Bank 3,910.6673 5.69% 3.78%
Cambridge, Massachusetts
AMF FUNDS. As of August 1, 2005, the officers and Trustees of AMF as a
group, directly owned less than 1% of the outstanding shares of each of the
AMF Funds. The following table provides certain information as of August 1,
2005 with respect to persons known to AMF to be beneficial and record owners of
5% or more of the shares of any class of shares of each of the AMF Funds. The
table also indicates the estimated percentage of the Acquiring Fund's shares to
be owned by such persons upon the consummation of the Reorganizations on the
basis of present holdings and commitments.
PRO FORMA-
NUMBER OF PERCENTAGE PERCENTAGE
NAME AND ADDRESS SHARES OWNERSHIP OWNERSHIP
- ----------------------------------- --------- ---------- -----------
SHORT U.S. GOVERNMENT FUND
Franklin Federal Savings and Loan Assn 1,524,871.393 11.86% 9.26%
Glen Allen, Virginia
Flushing Savings Bank FSB 1,050,758.500 8.18% 6.38%
Flushing, New York
El Dorado Savings Bank 936,680.768 7.29% 5.69%
Placerville, California
22
PRO FORMA-
NUMBER OF PERCENTAGE PERCENTAGE
NAME AND ADDRESS SHARES OWNERSHIP OWNERSHIP
- ----------------------------------- --------- ---------- -----------
First Carolina Corporate Credit Union 925,917.691 7.20% 5.62%
Greensboro, North Carolina
First Federal Savings & Loan Assoc. of 859,591.371 6.69% 5.22%
Lincolnton
Lincolnton, North Carolina
First Keystone Federal 838,095.819 6.52% 5.09%
Media, Pennsylvania
MONEY MARKET FUND - CLASS I
Mesirow Financial, Inc. 7,646,340.940 22.19% 7.38%
Chicago, Illinois
Parke Bank 6,275,976.800 18.22% 6.06%
Sewell, New Jersey
Enfield Federal Savings & Loan 5,713,751.730 16.58% 5.52%
Enfield, Connecticut
Washington Savings Bank 1,937,687.310 5.62% 1.87%
Effingham, Illinois
Mercer Savings Bank 1,801,778.740 5.23% 1.74%
Celina, Ohio
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed by calling BIF at (617) 695-0415
or AMF at (800) 527-3713.
23
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ____ day of August, 2005, by and among Asset Management Fund, a Delaware
statutory trust (the "Acquiring Trust"), with respect to Short U.S. Government
Fund and Money Market Fund, each a separate series of the Acquiring Trust (each,
an "Acquiring Fund" and collectively, the "Acquiring Funds"); Co-operative Bank
Investment Fund (d/b/a Bank Investment Fund), a corporation organized pursuant
to a special act of the Commonwealth of Massachusetts (Massachusetts Acts of
1984, Chapter 482, as amended) (the "Acquired Company"), with respect to Fund
One and Liquidity Fund, each a separate class of the Acquired Company (each, an
"Acquired Fund" and collectively, the "Acquired Funds"); and Shay Assets
Management, Inc., the investment adviser to the Acquiring Funds ("SAMI") (for
purposes of paragraph 9.1 of the Agreement only). The principal place of
business of the Acquiring Trust is 230 W. Monroe Street, Suite 2810, Chicago,
Illinois 60606-4902. The principal place of business of the Acquired Company is
75 Park Plaza, Boston, Massachusetts 02116-3934.
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
Regulations promulgated thereunder. The reorganization will consist of: (i) the
transfer of all of the assets of each Acquired Fund to its corresponding
Acquiring Fund, as identified in Exhibit A attached hereto, in exchange for
voting units of beneficial interest of its corresponding Acquiring Fund
("Acquiring Fund Shares"); (ii) the assumption by each Acquiring Fund of the
Stated Liabilities of its corresponding Acquired Fund as defined in paragraph
1.3; and (iii) the pro rata distribution, after the Closing Date as defined in
paragraph 3.1, of the Acquiring Fund Shares to the shareholders of record of the
corresponding Acquired Fund and the termination, dissolution and complete
liquidation of each Acquired Fund as provided herein, all upon the terms and
conditions set forth in this Agreement (the "Reorganization").
WHEREAS, the Acquiring Funds are each a separate series of the
Acquiring Trust, and the Acquired Funds are each a separate class of the
Acquired Company; and the Acquiring Trust and the Acquired Company are open-end,
registered management investment companies within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act"), and each Acquired Fund owns
securities that generally are assets of the character in which its corresponding
Acquiring Fund is permitted to invest;
WHEREAS, each Acquiring Fund is authorized to issue its shares of
beneficial interest;
WHEREAS, the Board of Trustees of the Acquiring Trust has determined
that the Reorganization is in the best interests of the Acquiring Funds and that
the interests of the existing shareholders of the Acquiring Funds will not be
diluted as a result of the Reorganization;
WHEREAS, the Board of Directors and Board of Incorporators of the
Acquired Company have determined that the Reorganization is in the best
interests of the Acquired Funds and that the interests of the existing
shareholders of the Acquired Funds will not be diluted as a result of the
Reorganization;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND
SHARES AND THE ASSUMPTION BY ACQUIRING FUND OF ACQUIRED FUND
LIABILITIES AND LIQUIDATION OF ACQUIRED FUND
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein
and on the basis of the representations and warranties contained herein, each
Acquired Fund agrees to transfer all of its assets, as set forth in paragraph
1.2, to its corresponding Acquiring Fund. In exchange, each Acquiring Fund
agrees: (i) to deliver to its corresponding Acquired Fund the number of full and
fractional Acquiring Fund Shares, determined by dividing the value of the
Acquired Fund's assets net of any Stated Liabilities of the Acquired Fund
described in paragraph 1.3, computed in the manner and as of the time and date
set forth in paragraph 2.1, by the net asset value of one Acquiring Fund Share,
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the Stated Liabilities of the Acquired Fund described in
paragraph 1.3. Such transactions shall take place at the closing (the "Closing")
provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of each Acquired Fund to be
acquired by its corresponding Acquiring Fund shall consist of all property owned
by the Acquired Fund, including, without limitation, all cash, securities,
commodities, interests in futures, claims (whether absolute or contingent, known
or unknown), receivables (including dividends, interest and other receivables),
goodwill and other intangible property (other than tradenames, trademarks and
copyrights), and any deferred or prepaid expenses shown as an asset on the books
of the Acquired Fund on the Closing Date, and all interests, rights, privileges
and powers, other than cash in an amount necessary to pay dividends and
distributions as provided in paragraph 8.4 and the Acquired Fund's rights under
this Agreement.
Each Acquired Fund has provided its corresponding Acquiring Fund with
its most recent audited financial statements, which contain a list of all of the
Acquired Fund's assets as of the date of such statements. Each Acquired Fund
hereby represents that, as of the date of the execution of this Agreement, there
have been no changes in its financial position as reflected in such financial
statements other than those occurring in the ordinary course of business in
connection with the purchase and sale of securities, the issuance and redemption
of the Acquired Fund's shares and the payment of normal operating expenses,
dividends and capital gains distributions.
Each Acquired Fund will, within a reasonable period of time before the
Closing Date, furnish its corresponding Acquiring Fund with a list of the
Acquired Fund's portfolio securities and other investments. Each Acquiring Fund
will, within a reasonable time before the Closing Date, furnish its
corresponding Acquired Fund with a list of the securities, if any, on the
Acquired Fund's list referred to above that do not conform to the Acquiring
Fund's investment objective, policies and restrictions. If requested by its
Acquiring Fund, each Acquired Fund will dispose of securities on the Acquiring
Fund's list before the Closing Date. In addition, if it is determined that the
portfolios of the Acquired Fund and the Acquiring Fund, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Acquired Fund, if requested
by the Acquiring Fund, will dispose of a sufficient amount of such investments
as may be necessary to avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, nothing herein will require an Acquired Fund to
dispose of any investments or securities if, in the reasonable judgment of the
Acquired Fund's Board of Directors, such disposition would adversely affect the
tax free nature of the Reorganization for federal income tax purposes or would
otherwise not be in the best interests of the Acquired Fund.
A-2
1.3 LIABILITIES TO BE ASSUMED. Each Acquired Fund will endeavor to
discharge all of its known liabilities and obligations to the extent possible
before the Closing Date. Each Acquiring Fund shall assume only those accrued and
unpaid liabilities of its corresponding Acquired Fund set forth in such Acquired
Fund's statement of assets and liabilities as of the Closing Date as delivered
by such Acquired Fund to its Acquiring Fund pursuant to paragraph 7.2 (the
"Stated Liabilities"). Each Acquiring Fund shall assume only the Stated
Liabilities of its corresponding Acquired Fund and shall not assume any other
debts, liabilities or obligations of the Acquired Fund.
1.4 STATE FILINGS. Prior to the Closing Date, the Acquired Company
shall make any filings with the Commonwealth of Massachusetts that may be
required under the laws of the Commonwealth of Massachusetts, effective as of
the Closing Date.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable, but in no event later than 12 months after the
Closing Date (the "Liquidation Date"): (a) each Acquired Fund will distribute in
complete liquidation of the Acquired Fund, pro rata to its shareholders of
record, determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), all of the Acquiring Fund Shares received by the
Acquired Fund pursuant to paragraph 1.1; and (b) each Acquired Fund will
thereupon proceed to dissolve and terminate as set forth in paragraph 1.9 below.
Such distribution will be accomplished by the transfer of Acquiring Fund Shares
credited to the account of each Acquired Fund on the books of its corresponding
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the name of the Acquired Fund Shareholders, and representing the respective pro
rata number of Acquiring Fund Shares due such shareholders. All issued and
outstanding shares of each Acquired Fund will simultaneously be canceled on the
books of the Acquired Fund. Each Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such transfer.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Funds' transfer agent. Shares of each
Acquiring Fund will be issued simultaneously to its corresponding Acquired Fund,
in an amount determined pursuant to paragraph 1.1, to be distributed to the
Acquired Fund Shareholders.
1.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance of
Acquiring Fund Shares in a name other than the registered holder of the Acquired
Fund shares on the books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Acquired Funds, including, without limitation, the responsibility for filing of
regulatory reports, tax returns or other documents with the Securities and
Exchange Commission (the "Commission"), any state securities commission, and any
federal, state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Acquired Funds, or the
Acquired Company on behalf of the Acquired Funds.
1.9 TERMINATION AND DISSOLUTION. Each Acquired Fund shall be terminated
and dissolved promptly following the Closing Date and the making of all
distributions pursuant to paragraph 1.5.
1.10 BOOKS AND RECORDS. All books and records of each Acquired Fund,
including all books and records required to be maintained under the 1940 Act,
the Code, and the rules and regulations thereunder, shall be available to the
Acquiring Funds from and after the Closing Date.
A-3
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of each Acquired Fund's assets to be
acquired by its corresponding Acquiring Fund hereunder shall be the value of
such assets as of the close of regular trading on the New York Stock Exchange
("NYSE") on the Closing Date, after the declaration and payment of any dividends
on that date, using the valuation procedures used for the Acquiring Trust or
such other valuation procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of Acquiring
Fund Shares shall be the net asset value per share computed on the Closing Date,
using the valuation procedures used for the Acquiring Trust or such other
valuation procedures as shall be mutually agreed upon by the parties.
2.3 SHARES TO BE ISSUED. The number of Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the assets of an
Acquired Fund shall be determined by dividing the value of the assets with
respect to shares of the Acquired Fund determined in accordance with paragraph
2.1 (less the Stated Liabilities) by the net asset value of an Acquiring Fund
Share determined in accordance with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
or under the direction of the Acquired or Acquiring Funds' respective accounting
agent, if applicable, in accordance with this Article II, and to the extent not
inconsistent therewith, its regular practice and the requirements of the 1940
Act, and shall be subject to review by the Acquiring Funds' investment adviser
and the Acquired Company's authorized officers.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing shall occur on August 26, 2005, or such
other date as the parties may agree to in writing (the "Closing Date"). Unless
otherwise provided, all acts taking place at the Closing shall be deemed to take
place as of immediately after the close of regular trading on the NYSE on the
Closing Date. The Closing shall be held at the offices of Vedder, Price, Kaufman
& Kammholz, P.C., 222 North LaSalle Street, Chicago, Illinois 60601, or at such
other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company
("State Street"), custodian for the Acquired Funds, shall deliver at the Closing
a certificate of an authorized officer stating that: (a) each Acquired Fund's
portfolio securities, cash and any other assets have been delivered in proper
form to The Bank of New York, the Acquiring Funds' custodian, on the Closing
Date; and (b) all necessary taxes including all applicable federal and state
stock transfer stamps, if any, have been paid, or provision for payment shall
have been made, in conjunction with the delivery of portfolio securities by each
Acquired Fund. Each Acquired Fund's portfolio securities represented by a
certificate or other written instrument shall be presented by State Street to
The Bank of New York for examination no later than five (5) business days
preceding the Closing Date and transferred and delivered by the Acquired Fund as
of the Closing Date for the account of the Acquired Fund's corresponding
Acquiring Fund, duly endorsed in proper form for transfer in such condition as
to constitute good delivery thereof. Each Acquired Fund's securities and
instruments deposited with a securities depository (as defined in Rule 17f-4
under the 1940 Act) or a futures commission merchant (as defined in Rule 17f-6
under the 1940 Act) shall be delivered as of the Closing Date by book entry in
accordance with the customary
A-4
practices of such depositories and futures commission merchants and The Bank of
New York. The cash to be transferred by each Acquired Fund shall be transferred
and delivered by the Acquired Fund as of the Closing Date for the account of its
corresponding Acquiring Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that, on the Closing
Date, either: (a) the NYSE or another primary exchange on which the portfolio
securities of the Acquiring Funds or the Acquired Funds are purchased or sold
shall be closed to trading or trading on such exchange shall be restricted; or
(b) trading or the reporting of trading on the NYSE or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Funds or the Acquired Funds is impracticable, the Closing shall be
postponed until the first business day after the day when trading is fully
resumed and reporting is restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Each Acquired Fund shall deliver at
the Closing a certificate of an authorized officer stating that its records
contain the names and addresses of the Acquired Fund Shareholders as of the
Closing Date, and the number and percentage ownership (to three decimal places)
of outstanding shares owned by each such shareholder immediately prior to the
Closing. Each Acquiring Fund shall issue and deliver or instruct BISYS Fund
Services Ohio, Inc., its transfer agent, to issue and deliver a confirmation
evidencing Acquiring Fund Shares to be credited on the Closing Date to its
corresponding Acquired Fund, or provide evidence satisfactory to the Acquired
Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund.
3.5 DELIVERY OF ADDITIONAL ITEMS. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, receipts and other documents, if any, as such other party or its
counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE ACQUIRED FUNDS. The Acquired Company, on
behalf of each Acquired Fund, separately and not jointly, represents and
warrants to its corresponding Acquiring Fund as follows:
(a) The Acquired Company is a corporation organized pursuant to
a special act of the Commonwealth of Massachusetts (Massachusetts Acts of 1984,
Chapter 482, as amended) that is duly organized, validly existing and in good
standing under laws of the Commonwealth of Massachusetts. The Acquired Fund is a
legally designated, separate class of the Acquired Company.
(b) The Acquired Company is registered as an open-end management
investment company under the 1940 Act, and its registration with the Commission
as an investment company under the 1940 Act is in full force and effect.
(c) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations thereunder and do not
include any untrue statement of a material fact or omit to state any material
fact required to be stated or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(d) The Acquired Fund is not in violation of, and the execution,
delivery and performance of this Agreement by the Acquired Company on behalf of
the Acquired Fund will not result in the violation of, the Commonwealth of
Massachusetts law or any provision of the Acquired Company's
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charter or bylaws or of any material agreement, indenture, instrument, contract,
lease or other undertaking to which the Acquired Company or the Acquired Fund is
a party or by which it is bound, nor will the execution, delivery and
performance of this Agreement by the Acquired Company on behalf of the Acquired
Fund, result in the acceleration of any obligation, or the imposition of any
penalty, under any material agreement, indenture, instrument, contract, lease or
other undertaking to which the Acquired Company or Acquired Fund is a party or
by which it is bound.
(e) The Acquired Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it before the Closing Date, except for liabilities, if any, to be discharged
or reflected in the statement of assets and liabilities as provided in paragraph
1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by
the Acquiring Trust, no litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to the
Acquired Company's knowledge threatened against the Acquired Fund or any of its
properties or assets which, if adversely determined, would materially and
adversely affect its financial condition, the conduct of its business or its
ability to carry out the transactions contemplated by this Agreement. The
Acquired Company knows of no facts that might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein.
(g) The financial statements of the Acquired Fund as of December
31, 2004 and for the fiscal year then ended and as of June 30, 2005 and for the
six-month period then ended have been prepared in accordance with accounting
principles generally accepted in the United States of America consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as
of such date, and there are no known contingent liabilities of the Acquired Fund
as of such date that are not disclosed in such statements. The financial
statements as of December 31, 2004 and for the fiscal year then ended have been
audited by independent auditors.
(h) Since the date of the financial statements referred to in
paragraph 4.1(g) above, there have been no material adverse changes in the
Acquired Fund's financial condition, assets, liabilities or business (other than
changes occurring in the ordinary course of business), or any incurrence by the
Acquired Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and accepted in
writing by the Acquiring Fund. For the purposes of this paragraph (h), a decline
in the net asset value of the Acquired Fund due to declines in the Acquired
Fund's portfolio, the discharge of the Acquired Fund's liabilities or the
redemption of the Acquired Fund's shares by the Acquired Fund Shareholders shall
not constitute a material adverse change.
(i) All federal and other tax returns and reports (including
amendments thereof) of the Acquired Fund required by law to be filed have been
timely filed and are correct in all material respects, and all federal and
other taxes of the Acquired Fund, whether or not shown as due on such returns
and reports, have been paid, or provision shall have been made for the payment
thereof. To the best of the Acquired Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) All issued and outstanding shares of the Acquired Fund have
been offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and applicable state securities laws
and are, and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Acquired Fund. All of the
issued and outstanding shares
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of the Acquired Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the Acquired Fund
provided in paragraph 3.4. The Acquired Fund has no outstanding options,
warrants or other rights to subscribe for or purchase shares of the Acquired
Fund and has no outstanding securities convertible into shares of the Acquired
Fund.
(k) At the Closing Date, the Acquired Company, on behalf of the
Acquired Fund, will have good and marketable title to the Acquired Fund's assets
to be transferred to the Acquiring Fund pursuant to paragraph 1.2, and full
right, power and authority to sell, assign, transfer and deliver such assets
hereunder, free of any lien or other encumbrance, except those liens or
encumbrances to which the Acquiring Fund has received notice pursuant to
paragraph 7.2; and, upon delivery and payment for such assets and the filing of
any documents that may be required under Delaware state law, the Acquiring Fund
will acquire good and marketable title, subject to no restrictions on the full
transfer of such assets, other than such restrictions as might arise under the
1933 Act and other than as disclosed to and accepted by the Acquiring Fund.
(l) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of the Board of
Directors and Board of Incorporators of the Acquired Company. This Agreement
constitutes a valid and binding obligation of the Acquired Company, enforceable
in accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles.
(m) The information to be furnished by the Acquired Fund for use
in no-action letters, applications for orders, registration statements and other
documents that may be necessary in connection with the transactions contemplated
herein shall be accurate and complete in all material respects and shall comply
in all material respects with federal securities and other laws and regulations.
(n) From the effective date of the Registration Statement (as
defined in paragraph 5.6) through the Closing Date, any written information
furnished by the Acquired Company with respect to the Acquired Fund for use in
the Registration Statement or any other materials provided in connection with
the Reorganization does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or
necessary to make the statements, in light of the circumstances under which such
statements were made, not misleading.
(o) The Acquired Fund has elected to qualify and has qualified
as a "regulated investment company" under the Code (a "RIC") as of and since its
first taxable year; has been a RIC under the Code at all times since the end of
its first taxable year when it so qualified; and qualifies and will continue to
qualify as a RIC under the Code for its taxable year ending upon its
liquidation.
(p) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by the Acquired
Company, on behalf of the Acquired Fund, of the transactions contemplated
herein, except such as may be required by the Massachusetts Commissioner of
Banks or under the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the 1940 Act or state securities law.
(q) The Acquired Fund incurred its Stated Liabilities in the
ordinary course of its business.
(r) The Acquired Fund is a "fund" as defined in section
851(g)(2) of the Code; the Acquired Fund elected to qualify and qualified for
treatment as a RIC for each past taxable year since it commenced operations and
will continue to meet all the requirements for that qualification for its
current taxable year; from the time the Board of the Acquired Company approves
this Agreement ("Approval
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Time") through the Closing Date, the Acquired Fund will invest its assets in a
manner that ensures its compliance with those requirements; and the Acquired
Fund has no earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M of the Code did not apply to it.
(s) The Acquired Fund is not under the jurisdiction of a court
in a "title 11 or similar case" (as defined in section 368(a)(3)(A) of the
Code).
(t) During the five-year period ending at the Closing Date, (a)
neither the Acquired Fund nor any person "related" (within the meaning of Treas.
Reg. ss. 1.368-1(e)(3)) to it will have acquired shares of the Acquired Fund,
either directly or through any transaction, agreement, or arrangement with any
other person, with consideration other than Acquiring Fund Shares issued by the
Acquiring Fund or shares of the Acquired Fund, except for shares redeemed in the
ordinary course of the Acquired Fund's business as a class of an open-end
investment company as required by section 22(e) of the 1940 Act, and (b) no
distributions will have been made with respect to the Acquired Fund, other than
normal, regular dividend distributions made pursuant to the Acquired Fund's
historic dividend-paying practice and other distributions that qualify for the
deduction for dividends paid (within the meaning of section 561) referred to in
sections 852(a)(1) and 4982(c)(1)(A) of the Code.
(u) From the date it commenced operations through the Closing
Date, the Acquired Fund has conducted and will conduct its "historic business"
(within the meaning of Treas. Reg. ss. 1.368-1(d)(2)) in a substantially
unchanged manner; and from the Approval Time through the Closing Date, the
Acquired Fund will not (a) dispose of and/or acquire any assets (i) for the
purpose of satisfying the Acquiring Fund's investment objective or policies or
(ii) for any other reason except in the ordinary course of its business as a RIC
or (b) otherwise change its historic investment policies.
(v) Not more than 25% of the value of the Acquired Fund's total
assets (excluding cash, cash items and U.S. government securities) is invested
in the stock and securities of any one issuer, and not more than 50% of the
value of such assets is invested in the stock and securities of five or fewer
issuers.
(w) No consideration other than Acquiring Fund Shares (and the
Acquiring Fund's assumption of the Acquired Fund's Stated Liabilities) will be
issued in exchange for the assets of the Acquired Fund in the Reorganization.
(x) During the five-year period ending at the Closing Date,
neither the Acquiring Fund nor any person "related" (within the meaning of
Treas. Reg. ss. 1.368-1(e)(3)) to it will have acquired Acquired Fund shares
with consideration other than shares of the Acquiring Fund.
(y) The fair market value of the Acquiring Fund Shares each
shareholder receives will be approximately equal to the fair market value of the
shares of the Acquired Fund such shareholder actually or constructively
surrenders in exchange therefor.
(z) The management of the Acquired Fund (a) is unaware of any
plan or intention of shareholders to redeem, sell, or otherwise dispose of (i)
any portion of their shares of the Acquired Fund before the Reorganization to
any person "related" (within the meaning of Treas. Reg. ss. 1.368-1(e)(3)) to
the Acquired Fund or the Acquiring Fund or (ii) any portion of the Acquiring
Fund Shares they receive in the Reorganization to any person "related" (within
such meaning) to the Acquiring Fund, (b) does not anticipate dispositions of
those Acquiring Fund Shares at the time of or soon after the Reorganization to
exceed the usual rate and frequency of dispositions of shares of the Acquired
Fund as a class of an open-end investment company, (c) expects that the
percentage of shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis, and (d) does
not
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anticipate that there will be extraordinary redemptions of Acquiring Fund Shares
immediately following the Reorganization.
(aa) The shareholders of the Acquired Fund will pay their own
expenses, if any, incurred in connection with the Reorganization.
(bb) The fair market value of the assets acquired from the
Acquired Fund, determined on a going concern basis, will equal or exceed the
Stated Liabilities to be assumed by the Acquiring Fund and those to which such
assets are subject.
(cc) There is no intercompany indebtedness between the Acquired
Fund and the Acquiring Fund that was issued or acquired, or will be settled, at
a discount.
(dd) Pursuant to the Reorganization, the Acquired Fund will
transfer to the Acquiring Fund, and the Acquiring Fund will acquire, at least
90% of the fair market value of the net assets, and at least 70% of the fair
market value of the gross assets, that the Acquired Fund held immediately before
the Reorganization. For the purposes of the foregoing, any amounts the Acquired
Fund uses to pay its Reorganization expenses and to make redemptions and
distributions immediately before the Reorganization (except (a) redemptions in
the ordinary course of its business required by section 22(e) of the 1940 Act
and (b) regular, normal dividend distributions made to conform to its policy of
distributing all or substantially all of its income and gains to avoid the
obligation to pay federal income tax and/or the excise tax under section 4982 of
the Code) will be included as assets it held immediately before the
Reorganization.
(ee) None of the compensation received by any shareholder who is
an employee of or service provider to the Acquired Fund will be separate
consideration for, or allocable to, any of the Acquired Fund shares that such
shareholder held; none of the Acquiring Fund Shares any such shareholder
receives will be separate consideration for, or allocable to, any employment
agreement, investment advisory agreement, or other service agreement; and the
compensation paid to any such shareholder will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(ff) If the Acquired Fund is Liquidity Fund, immediately after
the Reorganization, the shareholders of Liquidity Fund will own shares
constituting "control" (as defined in section 304(c) of the Code) of Money
Market Fund.
(gg) If the Acquired Fund is Fund One, immediately after the
Reorganization, the shareholders of Fund One will not own shares constituting
"control" (as defined in section 304(c) of the Code) of Short U.S. Government
Fund.
(hh) The Acquired Fund will not be reimbursed for any expenses
incurred by any such fund or on its behalf in connection with the Reorganization
unless those expenses are solely and directly related to the Reorganization
(determined in accordance with the guidelines set forth in Rev. Rul. 73-54,
1973-1 C.B. 187).
(ii) The aggregate value of the acquisitions, redemptions, and
distributions limited by the representations in paragraphs 4.1(t) and (x) will
not exceed 50% of the value (without giving effect to such acquisitions,
redemptions, and distributions) of the proprietary interest in the Acquired Fund
at the Closing Date.
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4.2 REPRESENTATIONS OF THE ACQUIRING FUNDS. The Acquiring Trust, on
behalf of each Acquiring Fund, separately and not jointly, represents and
warrants to its corresponding Acquired Fund as follows:
(a) The Acquiring Trust is a statutory trust that is duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Acquiring Trust is treated as a corporation for federal income tax purposes.
The Acquiring Fund is a separate series of the Acquiring Trust.
(b) The Acquiring Trust is registered as an open-end management
investment company under the 1940 Act, and the Acquiring Trust's registration
with the Commission as an investment company under the 1940 Act is in full force
and effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a material
fact or omit to state any material fact required to be stated or necessary to
make such statements therein, in light of the circumstances under which they
were made, not misleading.
(d) The Acquiring Fund is not in violation of, and the
execution, delivery and performance of this Agreement by the Acquiring Trust on
behalf of the Acquiring Fund will not result in, a violation of, Delaware law or
any provision of the Acquiring Trust's declaration of trust or bylaws or of any
material agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquiring Trust or the Acquiring Fund is a party or by which it is
bound, nor will the execution, delivery and performance of this Agreement by the
Acquiring Trust on behalf of the Acquiring Fund, result in the acceleration of
any obligation, or the imposition of any penalty, under any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Trust or the Acquiring Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to and accepted by
the Acquired Company, no litigation, administrative proceeding or investigation
of or before any court or governmental body is presently pending or to the
Acquiring Trust's knowledge threatened against the Acquiring Fund or any of its
properties or assets which, if adversely determined, would materially and
adversely affect its financial condition, the conduct of its business or its
ability to carry out the transactions contemplated by this Agreement. The
Acquiring Trust knows of no facts that might form the basis for the institution
of such proceedings and it is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transaction
contemplated herein.
(f) The financial statements of the Acquiring Fund as of October
31, 2004 and for the fiscal year then ended and as of April 30, 2005 and for the
six-month period then ended have been prepared in accordance with accounting
principles generally accepted in the United States of America consistently
applied, and such statements (copies of which have been furnished to the
Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as
of such date, and there are no known contingent liabilities of the Acquiring
Fund as of such date that are not disclosed in such statements. The financial
statements as of October 31, 2004 and for the fiscal year then ended have been
audited by independent auditors.
(g) Since the date of the financial statements referred to in
paragraph 4.2(f) above, there have been no material adverse changes in the
Acquiring Fund's financial condition, assets, liabilities or business (other
than changes occurring in the ordinary course of business), or any incurrence by
the Acquiring Fund of indebtedness maturing more than one year from the date
such indebtedness was incurred, except as otherwise disclosed to and accepted in
writing by the Acquired Fund. For the
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purposes of this paragraph (g), a decline in the net asset value of the
Acquiring Fund due to declines in the Acquiring Fund's portfolio, the discharge
of the Acquiring Fund's liabilities or the redemption of Acquiring Fund Shares
by Acquiring Fund shareholders shall not constitute a material adverse change.
(h) All federal and other tax returns and reports (including
amendments thereof) of the Acquiring Fund required by law to be filed have been
timely filed and are correct in all material respects, and all federal and
other taxes of the Acquiring Fund, whether or not shown as due on such returns
and reports, have been paid or provision shall have been made for the payment
thereof. To the best of the Acquiring Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(i) All issued and outstanding Acquiring Fund Shares have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and applicable state securities laws
and are, and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Acquiring Fund. The Acquiring
Fund has no outstanding options, warrants or other rights to subscribe for or
purchase Acquiring Fund Shares, and there are no outstanding securities
convertible into Acquiring Fund Shares.
(j) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of the Board of
Trustees of the Acquiring Trust, and this Agreement constitutes a valid and
binding obligation of the Acquiring Trust, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights and to
general equity principles.
(k) Acquiring Fund Shares to be issued and delivered to the
Acquired Fund for the account of the Acquired Fund Shareholders pursuant to the
terms of this Agreement will, at the Closing Date, have been duly authorized.
When so issued and delivered, such shares will be duly and validly issued
Acquiring Fund Shares and will be fully paid and nonassessable.
(l) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements and
other documents that may be necessary in connection with the transactions
contemplated herein shall be accurate and complete in all material respects and
shall comply in all material respects with federal securities and other laws and
regulations.
(m) From the effective date of the Registration Statement (as
defined in paragraph 5.6) through the Closing Date, any written information
furnished by the Acquiring Trust with respect to the Acquiring Fund for use in
the Registration Statement or any other materials provided in connection with
the Reorganization, does not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or
necessary to make the statements, in light of the circumstances under which such
statements were made, not misleading.
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring Trust,
on behalf of the Acquiring Fund, of the transactions contemplated herein, except
such as may be required under the 1933 Act, the 1934 Act, the 1940 Act or state
securities law.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act
and any state blue sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
(p) The Acquiring Fund is a "fund" as defined in section
851(g)(2) of the Code, the Acquiring Fund has elected to qualify and has
qualified for treatment as a RIC for each past taxable year
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since it commenced operations and will continue to meet all the requirements for
that qualification for its current taxable year; the Acquiring Fund intends to
continue to meet all such requirements for the next taxable year; the Acquiring
Fund has no earnings and profits accumulated in any taxable year in which the
provisions of Subchapter M of the Code did not apply to it.
(q) No consideration other than Acquiring Fund Shares (and the
Acquiring Fund's assumption of the Stated Liabilities of the Acquired Fund) will
be issued in exchange for the assets of the Acquired Fund in the Reorganization.
(r) The Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does the Acquiring Fund, or any person "related" (within
the meaning of Treas. Reg. ss. 1.368-1(e)(3)) to it, have any plan or intention
to acquire during the five-year period beginning at the Closing Date, either
directly or through any transaction, agreement, or arrangement with any other
person with consideration other than Acquiring Fund Shares issued by the
Acquiring Fund, any Acquiring Fund Shares issued to the Acquired Fund
Shareholders pursuant to the Reorganization, except for redemptions in the
ordinary course of such business as required by section 22(e) of the 1940 Act.
(s) Following the Reorganization, the Acquiring Fund (i) will continue
the Acquired Fund's "historic business" (within the meaning of Treas. Reg. ss.
1.368-1(d)(2)) or (ii) will use a significant portion of the Acquired Fund's
"historic business assets" (within the meaning of Treas. Reg. ss. 1.368-1(d)(3))
in a business; in addition, (iii) the Acquiring Fund has no plan or intention to
sell or otherwise dispose of more than 66% of the assets of the Acquired
Fund, except for dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC, and (iv) expects to
retain at least 34% of the assets of the Acquired Fund in the same form that
it receives them in the Reorganization, unless and until subsequent investment
circumstances suggest the desirability of change or it becomes necessary to make
dispositions thereof to maintain such status.
(t) There is no plan or intention for the Acquiring Fund to be
dissolved or merged into any statutory or business trust or any corporation or
any "fund" thereof (as defined in section 851(g)(2) of the Code) following the
Reorganization.
(u) The Acquiring Fund does not directly or indirectly own, and
at the Closing Date it will not directly or indirectly own, nor has it directly
or indirectly owned at any time during the past five years, any shares of the
Acquired Fund.
(v) During the five-year period ending at the Closing Date,
neither the Acquiring Fund nor any person "related" (within the meaning of
Treas. Reg. ss. 1.368-1(e)(3)) to it will have acquired shares of the Acquired
Fund with consideration other than Acquiring Fund Shares issued by the Acquiring
Fund.
(w) Immediately after the Reorganization, (i) not more than 25%
of the value of the Acquiring Fund's total assets (excluding cash, cash items
and U.S. government securities) will be invested in the stock and securities of
any one issuer, and (ii) not more than 50% of the value of such assets will be
invested in the stock and securities of five or fewer issuers.
(x) The fair market value of the Acquiring Fund Shares each
shareholder receives will be approximately equal to the fair market value of the
shares of the Acquired Fund that such shareholder actually or constructively
surrenders in exchange therefor.
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(y) The management of the Acquiring Fund, to the best of its
knowledge, is unaware of any plan or intention on the part of the shareholders
of the Acquired Fund to sell, exchange, redeem or otherwise dispose of a number
of Acquiring Fund Shares to be received in the Reorganization that would reduce
such Acquired Fund's shareholders' ownership of the Acquiring Fund's shares to a
number of shares having a value, as of the Closing Date, of less than 50 percent
of the value of all of the formerly outstanding shares of the Acquired Fund as
of the same date. For purposes of this representation, shares of the Acquired
Fund exchanged for cash or other property, surrendered by dissenters, if any, or
exchanged for cash in lieu of fractional shares of the Acquiring Fund will be
treated as outstanding Acquired Fund shares on the Closing Date. Moreover,
shares of the Acquired Fund and shares of the Acquiring Fund held by Acquired
Fund shareholders and otherwise sold, redeemed, or disposed of prior to or
subsequent to the Reorganization will be considered in making this
representation.
(z) To the knowledge of management of the Acquiring Fund, the
shareholders of the Acquired Fund will pay their own expenses, if any, incurred
in connection with the Reorganization.
(aa) There is no intercompany indebtedness between the Acquiring
Fund and the Acquired Fund that was issued or acquired, or will be settled, at a
discount.
(bb) None of the compensation received by any shareholder who is
an employee of or service provider to the Acquired Fund will be separate
consideration for, or allocable to, any of the Acquired Fund shares that such
shareholder held; none of the Acquiring Fund Shares any such shareholder
receives will be separate consideration for, or allocable to, any employment
agreement, investment advisory agreement, or other service agreement; and the
compensation paid to any such shareholder will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
(cc) If the Acquiring Fund is Money Market Fund, immediately
after the Reorganization, the shareholders of Liquidity Fund will own shares
constituting "control" (as defined in section 304(c)) of Money Market Fund.
(dd) If the Acquiring Fund is Short U.S. Government Fund,
immediately after the Reorganization, the shareholders of Fund One will not own
shares constituting "control" (as defined in section 304(c)) of Short U.S.
Government Fund.
ARTICLE V
COVENANTS OF THE ACQUIRING FUNDS AND THE ACQUIRED FUNDS
5.1 OPERATION IN ORDINARY COURSE. Subject to paragraph 8.4, each
Acquiring Fund and Acquired Fund will operate its business in the ordinary
course between the date of this Agreement and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and shareholder purchases and redemptions. No party shall take any
action that would, or reasonably would be expected to, result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect.
5.2 ACCESS TO BOOKS AND RECORDS. Upon reasonable notice, the Acquiring
Trust's officers and agents shall have reasonable access to the Acquired Funds'
books and records necessary to maintain current knowledge of the Acquired Funds
and to ensure that the representations and warranties made by or on behalf of
the Acquired Funds are accurate.
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5.3 ADDITIONAL INFORMATION. The Acquired Funds will assist the
Acquiring Funds in obtaining such information as the Acquiring Funds reasonably
request concerning the beneficial ownership of the Acquired Funds' shares.
5.4 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Funds and the Acquired Funds will take or cause to be taken all action
and do or cause to be done all things reasonably necessary, proper or advisable
to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date. In
particular, the Acquired Company and each Acquired Fund covenants that it will,
as and when reasonably requested by the Acquiring Funds, execute and deliver or
cause to be executed and delivered all such assignments and other instruments
and will take or cause to be taken such further action as the Acquiring Funds
may reasonably deem necessary or desirable in order to vest in and confirm the
Acquiring Funds' title to and possession of all the assets and otherwise to
carry out the intent and purpose of this Agreement.
5.5 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty (60) days after the Closing Date, the Acquired Funds
shall furnish to the Acquiring Funds, in such form as is reasonably satisfactory
to the Acquiring Funds, a statement of the earnings and profits of the Acquired
Funds for federal income tax purposes, as well as any net operating loss
carryovers and capital loss carryovers, that will be carried over by the
Acquiring Funds as a result of Section 381 of the Code, and which will be
certified by the Treasurer of the Acquired Company.
5.6 PREPARATION OF REGISTRATION STATEMENT. The Acquiring Trust will
have filed with the Commission a registration statement on Form N-14 (the
"Registration Statement") relating to the Acquiring Fund Shares to be issued to
Acquired Fund Shareholders. The Registration Statement shall include a
prospectus of the Acquiring Funds relating to the transactions contemplated by
this Agreement. Each party will have provided the other party with the materials
and information necessary to prepare the Registration Statement. Upon the
execution of this Agreement, the Acquired Company shall deliver a certificate to
the Acquiring Trust certifying the accuracy and completeness of the information
concerning or provided by the Acquired Company in the form attached hereto as
Exhibit B. The Registration Statement shall be in compliance with the 1933 Act,
the 1934 Act and the 1940 Act, as applicable.
5.7 BEST EFFORTS. The Acquiring Trust, each Acquiring Fund, the
Acquired Company and each Acquired Fund shall use its reasonable efforts to
fulfill or obtain the fulfillment of the conditions precedent to effect the
transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUNDS
The obligations of each Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by its
corresponding Acquiring Fund of all the obligations to be performed by such
Acquiring Fund pursuant to this Agreement on or before the Closing Date and, in
addition, subject to the following conditions:
6.1 All representations, covenants and warranties of the Acquiring
Trust and each Acquiring Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date.
Each Acquiring Fund shall have delivered to its corresponding Acquired Fund on
the Closing Date a certificate executed in the Acquiring Fund's name by the
Acquiring Trust's President, Vice President or Secretary and its Treasurer or
Assistant Treasurer, in form and substance satisfactory to the Acquired Fund and
dated as of A-14
A-14
the Closing Date, to such effect and as to such other matters as the Acquired
Fund shall reasonably request.
6.2 The Acquired Company, on behalf of the Acquired Funds, shall have
received on the Closing Date an opinion from Vedder, Price, Kaufman & Kammholz,
P.C., dated as of the Closing Date, in a form reasonably satisfactory to the
Acquired Funds, covering the following points:
(a) The Acquiring Trust is a statutory trust validly existing
under the laws of the State of Delaware.
(b) To such counsel's knowledge, and without any independent
investigation, the Acquiring Trust is registered as an open-end management
investment company under the 1940 Act and such registration with the Commission
as an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Acquiring Trust on behalf of the Acquiring Funds and, assuming
due authorization, execution and delivery of this Agreement by the Acquired
Company on behalf of the Acquired Funds, is a valid and binding obligation of
the Acquiring Trust on behalf of the Acquiring Funds, enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) Assuming that Acquiring Fund Shares have been issued in
accordance with the terms of this Agreement, Acquiring Fund Shares to be issued
and delivered to each Acquired Fund on behalf of the Acquired Fund Shareholders,
as provided by this Agreement, are duly authorized and upon such delivery will
be legally issued and outstanding and fully paid and nonassessable, and no
shareholder of the Acquiring Funds has any preemptive rights with respect to
Acquiring Fund Shares.
(e) The Registration Statement has been declared effective by
the Commission, and to such counsel's knowledge no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel, and
without any independent investigation, all regulatory consents, authorizations,
approvals or filings required to be obtained or made by the Acquiring Funds
under the federal laws of the United States or the laws of the State of Delaware
for the exchange of each Acquired Fund's assets for Acquiring Fund Shares
pursuant to this Agreement have been obtained or made.
(f) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated herein will not, result in a
violation of the Acquiring Trust's declaration of trust or bylaws.
(g) To such counsel's knowledge, and without any independent
investigation, the Acquiring Trust is not subject to any litigation or other
proceedings that might have a materially adverse effect on the operations of the
Acquiring Funds.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUNDS
The obligations of each Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by its
corresponding Acquired Fund of all the obligations to be performed by such
Acquired Fund pursuant to this Agreement on or before the Closing Date and, in
addition, shall be subject to the following conditions:
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7.1 All representations, covenants and warranties of the Acquired
Company and each Acquired Fund contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the Closing
Date, with the same force and effect as if made on and as of the Closing Date.
Each Acquired Fund shall have delivered to its corresponding Acquiring Fund on
the Closing Date a certificate executed in the Acquired Fund's name by the
Acquired Company's President or Vice President and its Treasurer, in form and
substance satisfactory to the Acquiring Fund and dated as of the Closing Date,
to such effect and as to such other matters as the Acquiring Fund shall
reasonably request.
7.2 The Acquired Funds shall have delivered to the Acquiring Funds a
statement of each Acquired Fund's assets and liabilities, together with a list
of each Acquired Fund's portfolio securities showing the adjusted basis, for
federal income tax purposes, of such securities by lot and the holding periods
of such securities, as of the Closing Date, certified by the Treasurer of the
Acquired Company.
7.3 The Acquiring Trust, on behalf of the Acquiring Funds, shall have
received on the Closing Date an opinion from Kirkpatrick & Lockhart Nicholson
Graham LLP, dated as of the Closing Date, in a form reasonably satisfactory to
the Acquiring Funds, covering the following points:
(a) The Acquired Company is a corporation organized pursuant to
a special act of the Commonwealth of Massachusetts (Massachusetts Acts of 1984,
Chapter 482, as amended) validly existing under the laws of the Commonwealth of
Massachusetts.
(b) To such counsel's knowledge, and without any independent
investigation, the Acquired Company is registered as an open-end management
investment company under the 1940 Act and such registration with the Commission
as an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Acquired Company on behalf of the Acquired Funds and, assuming
due authorization, execution and delivery of this Agreement by the Acquiring
Trust on behalf of the Acquiring Funds, is a valid and binding obligation of the
Acquired Company on behalf of the Acquired Funds, enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, and without any
independent investigation, all regulatory consents, authorizations, approvals or
filings required to be obtained or made by the Acquired Funds under the federal
laws of the United States or the laws of the Commonwealth of Massachusetts for
the exchange of the Acquired Funds' assets for Acquiring Fund Shares pursuant to
this Agreement have been obtained or made.
(e) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby are authorized under the
laws of the Commonwealth of Massachusetts and do not, and will not, result in a
violation of the Acquired Company's charter or bylaws, as applicable.
(f) To such counsel's knowledge, and without any independent
investigation, the Acquired Company is not subject to any litigation or other
proceedings that might have a materially adverse effect on the operations of the
Acquired Funds.
7.4 The Acquiring Trust and SAMI shall have completed due diligence on
each Acquired Fund, including without limitation, review of the Acquired Fund's
financial records, financial statements, tax returns, government and regulatory
filings, minute books and corporate records, and such due
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diligence does not result in the disclosure or revelation of any fact that would
materially and adversely affect the value of completing the Reorganization to
the Acquiring Trust, an Acquiring Fund, or SAMI.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH OF THE
ACQUIRING FUNDS AND ACQUIRED FUNDS
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Funds or the Acquiring Funds, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, or instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act. Furthermore, no action,
suit or other proceeding shall be threatened or pending before any court or
governmental agency in which it is sought to restrain or prohibit, or obtain
damages or other relief in connection with, this Agreement or the transactions
contemplated herein.
8.2 All required consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities (including
those of the Commission and of state securities authorities, including any
necessary "no-action" positions and exemptive orders from such federal
authorities) to permit consummation of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Funds or the Acquired Funds, provided that either
party hereto may waive any such conditions for itself.
8.3 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued. To the best knowledge of the parties to this Agreement, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 1933 Act.
8.4 Each Acquired Fund shall have declared and paid a dividend or
dividends that, together with all previous such dividends, shall have the effect
of distributing to its shareholders all of the Acquired Fund's investment
company taxable income for all taxable periods ending on or before the Closing
Date (computed without regard to any deduction for dividends paid), if any, plus
the excess of its interest income, if any, excludable from gross income under
Section 103(a) of the Code over its deductions disallowed under Sections 265 and
171(a)(2) of the Code for all taxable periods ending on or before the Closing
Date and all of its net capital gains realized in all taxable periods ending on
or before the Closing Date (after reduction for any capital loss carry forward).
8.5 As of the Closing Date, there shall be (a) no pending or threatened
litigation brought by any person against the Acquired Company, the Acquired
Funds, the Acquiring Trust or the Acquiring Funds or any of the investment
advisers, trustees, directors or officers of the foregoing, arising out of this
Agreement, and (b) no facts known to the Acquired Company, the Acquired Funds,
the Acquiring Trust or the Acquiring Funds, which any of such persons reasonably
believes might result in such litigation.
8.6 The Acquiring Trust and the Acquired Company shall have received an
opinion of Kirkpatrick & Lockhart Nicholson Graham LLP addressed to each of the
Acquiring Funds and the Acquired Funds substantially to the effect that, based
on certain facts, assumptions and representations of the parties, for federal
income tax purposes:
A-17
(a) the transfer of all of the assets of each Acquired Fund in
exchange for Acquiring Fund Shares and the assumption by each Acquiring Fund of
the Stated Liabilities of its corresponding Acquired Fund followed by the
distribution of Acquiring Fund Shares to the Acquired Fund Shareholders in
complete dissolution and liquidation of each Acquired Fund will each constitute
a "reorganization" within the meaning of Section 368(a)(1) of the Code and the
Acquiring Funds and the Acquired Funds, with regard to their respective
transactions, will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(b) no gain or loss will be recognized by an Acquiring Fund upon
the receipt of all of the assets of its corresponding Acquired Fund solely in
exchange for Acquiring Fund Shares and the assumption by such Acquiring Fund of
the Stated Liabilities of such Acquired Fund;
(c) no gain or loss will be recognized by an Acquired Fund upon
the transfer of all of its assets to its corresponding Acquiring Fund solely in
exchange for Acquiring Fund Shares and the assumption by such Acquiring Fund of
the Stated Liabilities of such Acquired Fund or upon the distribution (whether
actual or constructive) of Acquiring Fund Shares to Acquired Fund Shareholders
in exchange for such shareholders' shares of such Acquired Fund;
(d) no gain or loss will be recognized by the Acquired Fund
Shareholders upon the exchange of their Acquired Fund shares solely for
Acquiring Fund Shares in the Reorganization;
(e) the aggregate tax basis of Acquiring Fund Shares received
by each Acquired Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund shares exchanged therefor
by such shareholder. The holding period of Acquiring Fund Shares to be received
by each Acquired Fund Shareholder will include the period during which the
Acquired Fund shares exchanged therefor were held by such shareholder, provided
such Acquired Fund shares are held as capital assets at the time of the
Reorganization; and
(f) the tax basis of an Acquired Fund's assets acquired by its
corresponding Acquiring Fund will be the same as the tax basis of such assets to
such Acquired Fund immediately before the Reorganization. The holding period of
the assets of an Acquired Fund in the hands of its corresponding Acquiring Fund
will include the period during which those assets were held by such Acquired
Fund.
Such opinion shall be based on customary assumptions and such
representations as Kirkpatrick & Lockhart Nicholson Graham LLP may reasonably
request, and each of the Acquired Funds and the Acquiring Funds will reasonably
cooperate to make and certify the accuracy of such representations. In rendering
such opinion, Kirkpatrick & Lockhart Nicholson Graham LLP may assume
satisfaction of all the conditions set forth in Article VI and Article VII, may
treat them as representations and warranties made to Kirkpatrick & Lockhart
Nicholson Graham LLP, and may rely as to factual matters, exclusively and
without independent verification, on such representations and warranties and on
representations and warranties made in separate letters addressed to Kirkpatrick
& Lockhart Nicholson Graham LLP.
ARTICLE IX
EXPENSES
9.1 The parties shall bear their own expenses in connection with the
Reorganization, subject to the following provisions: SAMI (or an affiliate) will
for the benefit of the Acquiring Funds pay the Acquired Company's legal fees and
audit fees in connection with the Reorganization up to a maximum of $70,000 if
the transactions provided for herein are consummated; provided that SAMI shall
advance to the Acquired Company $50,000 of the $70,000 upon the execution of
this Agreement, such amount to be
A-18
returnable upon a failure of the Acquired Company to satisfy the conditions
precedent set forth in this Agreement or the term sheet agreed to by the parties
prior to the execution of this Agreement or a breach by the Acquired Company of
any representation in this Agreement or the term sheet. The Acquiring Trust
shall pay those expenses that are legitimate fund expenses incurred in
connection with the Reorganization, such as costs of preparing, printing and
mailing the Registration Statement, registration fees and transfer agency fees,
to the extent approved by the Board of Trustees of the Acquiring Trust.
Notwithstanding the foregoing, expenses shall be paid by the party directly
incurring them if and to the extent that the payment thereof by another person
would result in such party's disqualification as a RIC or if Kirkpatrick &
Lockhart Nicholson Graham LLP shall provide notice to the parties that such
payment would prevent the Reorganization from qualifying as a reorganization
with the meaning of Sectin 368(a) of the Code.
9.2 The Acquiring Trust, on behalf of the Acquiring Funds, and the
Acquired Company, on behalf of the Acquired Funds, represent and warrant that
they have no obligations to pay any brokers' or finders' fees in connection with
the transactions provided for herein.
ARTICLE X
INDEMNIFICATION
10.1 The Acquiring Trust agrees to indemnify and hold harmless the
Acquired Company, its directors and its officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without limitation,
the payment of reasonable legal fees and reasonable costs of investigation) to
which any such indemnified party may become subject, insofar as any such loss,
claim, damage, liability or expense (or actions with respect thereto) arises out
of or is based on any breach by the Acquiring Trust or an Acquiring Fund of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
10.2 The Acquired Company agrees to indemnify and hold harmless the
Acquiring Trust, its trustees and its officers from and against any and all
losses, claims, damages, liabilities or expenses (including, without limitation,
the payment of reasonable legal fees and reasonable costs of investigation) to
which any such indemnified party may become subject, insofar as any such loss,
claim, damage, liability or expense (or actions with respect thereto) arises out
of or is based on any breach by the Acquired Company or an Acquired Fund of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
ARTICLE XI
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 The Acquiring Trust, on behalf of the Acquiring Funds, and the
Acquired Company, on behalf of the Acquired Funds, agree that no party has made
to the other party any representation, warranty and/or covenant not set forth
herein or in the term sheet agreed to by the parties prior to the execution of
this Agreement and that this Agreement and the term sheet constitute the entire
agreement between the parties.
11.2 Except as specified in the next sentence set forth in this
paragraph 11.2, the representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant to or in connection with this
Agreement shall not survive the consummation of the transactions contemplated
hereunder. The covenants to be performed after the Closing Date, the
indemnification obligations of Article X, and the obligations of the Acquiring
Funds and the Acquired Funds in paragraph 5.4 shall continue in effect beyond
the consummation of the transactions contemplated hereunder.
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ARTICLE XII
TERMINATION
12.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Trust and the Acquired Company. In addition, either the Acquiring
Trust or the Acquired Company may at its option terminate this Agreement at or
before the Closing Date due to:
(a) a breach by the other of any representation, warranty or
agreement contained herein to be performed at or before the Closing Date, if not
cured by the Closing Date; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party that has not been met if it reasonably
appears that it will not or cannot be met.
12.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Funds, the Acquired Funds, the Acquiring Trust or the Acquired
Company, or their respective board members or officers, to the other party or
its board members or officers, except for repayment of expenses advanced
pursuant to paragraph 9.1. In the event of willful default, all remedies at law
or in equity of the party adversely affected shall survive.
ARTICLE XIII
AMENDMENTS
13.1 This Agreement may be amended, modified or supplemented in such
manner as may be mutually agreed upon in writing by the officers of the
Acquiring Trust and the Acquired Company as specifically authorized by their
respective board members.
ARTICLE XIV
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
14.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
14.5 It is expressly agreed that the obligations of each of the
Acquiring Funds hereunder shall not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of the Acquiring Trust
personally, but shall bind only the property of each of the Acquiring Funds, as
provided
A-20
in the declaration of trust of the Acquiring Trust. Moreover, no series of the
Acquiring Trust other than the respective Acquiring Fund shall be responsible
for the obligations of such Acquiring Fund hereunder, and all persons shall look
only to the assets of the respective Acquiring Fund to satisfy the obligations
of such Acquiring Fund hereunder. The execution and delivery of this Agreement
have been authorized by the Board of Trustees of the Acquiring Trust on behalf
of each of the Acquiring Funds and signed by authorized officers of the
Acquiring Trust, acting as such. Neither the authorization by such trustees nor
the execution and delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
but shall bind only the property of each of the Acquiring Funds as provided in
the Acquiring Trust's declaration of trust.
14.6 It is expressly agreed that the obligations of each of the
Acquired Funds hereunder shall not be binding upon any of the directors,
incorporators, shareholders, nominees, officers, agents or employees of the
Acquired Company personally, but shall bind only the property of each of the
Acquired Funds, as provided in the charter of the Acquired Company. Moreover,
all persons shall look only to the assets of the respective Acquired Fund to
satisfy the obligations of such Acquired Fund hereunder. The execution and
delivery of this Agreement have been authorized by the Board of Directors and
Board of Incorporators of the Acquired Company on behalf of each of the Acquired
Funds and signed by authorized officers of the Acquired Company, acting as such.
Neither the authorization by such directors and incorporators nor the execution
and delivery by such officers shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the property of each of the Acquired Funds as provided in the Acquired
Company's charter.
ARTICLE XV
NOTICES
15.1 Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall be deemed duly
given if delivered by hand (including by FedEx or similar express courier) or
transmitted by facsimile or three days after being mailed by prepaid registered
or certified mail, return receipt requested, addressed to the applicable party:
to the Acquired Company, 75 Park Plaza, Boston, Massachusetts 02116-3934,
Attention: Mr. William F. Casey, Jr., or to the Acquiring Trust, 230 W. Monroe
Street, Suite 2810, Chicago, Illinois 60606-4902, Attention: Mr. Edward E.
Sammons, Jr., or to any other address that the Acquiring Trust or the Acquired
Company shall have last designated by notice to the other party.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
ASSET MANAGEMENT FUND
By:_____________________________________
Name: Robert T. Podraza
Title: Vice President
ACKNOWLEDGED:
By:_________________________
Name:_______________________
Title:______________________
CO-OPERATIVE BANK INVESTMENT
FUND (D/B/A BANK INVESTMENT FUND)
By:_____________________________________
Name: William F. Casey, Jr.
Title: President
ACKNOWLEDGED:
By:_________________________
Name:_______________________
Title:______________________
The Undersigned is a party to this
Agreement for the purpose of paragraph
9.1 only:
SHAY ASSETS MANAGEMENT, INC.
By:_____________________________________
Name: Rodger D. Shay, Jr.
Title: President
ACKNOWLEDGED:
By:_________________________
Name:_______________________
Title:______________________
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EXHIBIT A
------------------- ------------------------------
ACQUIRED FUND ACQUIRING FUND
------------------- ------------------------------
Fund One Short U.S. Government Fund
------------------- ------------------------------
Liquidity Fund Money Market Fund
------------------- ------------------------------
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EXHIBIT B
CERTIFICATE
The undersigned, being an authorized corporate officer of Co-operative
Bank Investment Fund (d/b/a Bank Investment Fund) (the "Acquired Company"),
hereby certifies that:
1. This certificate is being furnished by the Acquired Company,
with respect to Fund One and Liquidity Fund (the "Acquired
Funds"), pursuant to Section 5.6 of the Agreement and Plan of
Reorganization dated August __, 2005 (the "Agreement"), by and
among the Acquired Company, with respect to each of the
Acquired Funds, and Asset Management Fund, with respect to
each of Short U.S. Government Fund and Money Market Fund (the
"Acquiring Funds");
2. The registration statement on Form N-14 (the "Registration
Statement") relating to the Acquiring Fund shares to be issued
to shareholders of the Acquired Funds in connection with the
transactions contemplated by the Agreement does not contain
any untrue statement of a material fact or omit to state a
material fact about the Acquired Company or Acquired Funds
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading; and
3. The financial statements and other financial information
included in the Registration Statement or incorporated by
reference into the Registration Statement with respect to the
Acquired Company and Acquired Funds fairly present in all
material respects the financial condition, results of
operation, changes in net assets and cash flows (if the
financial statements are required to include a statement of
cash flows) of the Acquired Company and Acquired Funds as of
the date hereof.
IN WITNESS WHEREOF, the undersigned hereby executes this Certificate as
of the __th day of August, 2005.
CO-OPERATIVE BANK INVESTMENT FUND
(d/b/a BANK INVESTMENT FUND)
By:_____________________________________
Name: William F. Casey, Jr.
Title: President
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ASSET MANAGEMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 25, 2005
SHORT U.S. GOVERNMENT FUND
MONEY MARKET FUND
230 WEST MONROE STREET, SUITE 2810, CHICAGO, ILLINOIS 60606
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Information Statement/Prospectus dated August
25, 2005 relating to the shares of Short U.S. Government Fund and Money Market
Fund, each a separate series of Asset Management Fund, to be issued in exchange
for shares of Fund One and Liquidity Fund, each a separate fund of Bank
Investment Fund. Copies of the Information Statement/Prospectus may be obtained
at no charge by writing to Asset Management Fund at 230 W. Monroe Street, Suite
2810, Chicago, Illinois 60606 or by calling (800) 527-3713.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Information
Statement/Prospectus.
------------------------------
TABLE OF CONTENTS
PAGE
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Additional Information about the Funds.......................................S-2
Financial Statements.........................................................S-2
Pro Forma Financial Statements...............................................S-2
S-1
ADDITIONAL INFORMATION ABOUT ACQUIRING FUNDS
Further information about Short U.S. Government Fund and Money Market
Fund is contained in and incorporated herein by reference to the Fund's
Statement of Additional Information ("SAI") dated March 1, 2005, as
supplemented, insofar as it relates to Short U.S. Government Fund and Money
Market Fund. No other part of the SAI is incorporated by reference herein.
FINANCIAL STATEMENTS
The audited financial statements and related independent registered
public accounting firm's report for Short U.S. Government Fund and Money Market
Fund contained in Asset Management Fund's Annual Report for the fiscal year
ended October 31, 2004 are hereby incorporated herein by reference insofar as
they relate to Short U.S. Government Fund and Money Market Fund. The unaudited
financial statements for Short U.S. Government Fund and Money Market Fund
contained in Asset Management Fund's Semi-Annual Report for the period ended
April 30, 2005 are hereby incorporated herein by reference insofar as they
relate to Short U.S. Government Fund and Money Market Fund. No other parts of
the Annual Report or Semi-Annual Report are incorporated by reference herein.
The audited financial statements and related independent registered
public accounting firm's report for Fund One and Liquidity Fund contained in
Bank Investment Fund's Statement of Additional Information for the fiscal year
ended December 31, 2004 are hereby incorporated herein by reference insofar as
they relate to Fund One and Liquidity Fund. No other parts of BIF's Statement of
Additional Information are incorporated by reference herein.
PRO FORMA FINANCIAL STATEMENTS
Below are the unaudited pro forma financial statements of Short U.S.
Government Fund and Money Market Fund as if the Reorganizations were consummated
on April 30, 2005.
S-2
SHORT U.S. GOVERNMENT FUND/FUND ONE
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED APRIL 30, 2005 (UNAUDITED)
SHORT PRO FORMA COMBINED
U.S. GOVERNMENT FUND PRO FORMA SHORT U.S.
FUND ONE ADJUSTMENTS GOVERNMENT FUND
---------------- -------- ----------- ------------------
INVESTMENT INCOME
Interest income $ 5,147,554 $1,350,820 $ - $ 6,498,374
----------- ---------- --------- -----------
EXPENSES
Investment advisory fees 384,425 139,175 523,600
Distribution fees- Class I Shares 230,657 14,382 69,121 314,160
Administration fees 46,131 16,701 62,832
Custodian fees 31,190 5,800 (2,472) 34,518
Transfer agent fees 3,315 526 3,841
Legal fees 3,283 8,000 (7,064)(a) 4,219
Printing fees 1,868 11,809 (11,185)(a) 2,492
Trustees' fees 3,277 10,600 (9,666)(a) 4,211
Compensation, Taxes, & Benefits 65,397 (65,397)(a) -
Occupancy 52,964 (52,964)(a) -
Accounting fees 23,000 (23,000)(a) -
Equipment and Data Processing 16,484 (16,484)(a) -
Insurance 10,500 (10,500)(a) -
Other 36,793 3,335 7,153 47,281
----------- ---------- --------- -----------
Total expenses 740,939 222,271 33,944 997,154
----------- ---------- --------- -----------
Less: amounts waived 17,564 17,564
----------- ---------- --------- -----------
Net expenses 740,939 204,707 33,944 979,590
----------- ---------- --------- -----------
Net investment income (loss) 4,406,615 1,146,113 (33,944) 5,518,784
----------- ---------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain (loss) on transactions from investment
transactions (1,881,603) (998,605) (2,880,208)
Change in unrealized appreciation/depreciation from investments 433,477 534,351 967,828
----------- ---------- --------- -----------
Net realized and unrealized gain from investments (1,448,126) (464,254) - (1,912,380)
----------- ---------- --------- -----------
Change in net assets resulting from operations $ 2,958,489 $ 681,859 $ (33,944) $ 3,606,404
=========== ========== ========= ===========
<FN>
(a) Reflects the elimination of duplicative fund level fees.
</FN>
The accompanying notes are an integral part of these pro forma financial
statements.
S-3
SHORT U.S. GOVERNMENT FUND/FUND ONE
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES
FOR THE TWELVE MONTHS ENDED APRIL 30, 2005 (UNAUDITED)
SHORT PRO FORMA COMBINED
U.S. GOVERNMENT FUND PRO FORMA SHORT U.S.
FUND ONE ADJUSTMENTS GOVERNMENT FUND
---------------- ------------ ----------- ------------------
ASSETS
Investments, at value $ 138,830,047 $ - $ 138,830,047
Repurchase agreements, at cost 2,085,000 39,045,000 41,130,000
--------------- ------------ --------- --------------
Total investments 140,915,047 39,045,000 - 179,960,047
--------------- ------------ --------- --------------
Cash 770 38,608 39,378
Accrued interest and dividends receivable 725,792 3,156 728,948
Securities sold receivable 341,961 - 341,961
Other assets 9,522 - 9,522
--------------- ------------ --------- --------------
Total Assets $ 141,993,092 $ 39,086,764 $ - $ 181,079,856
--------------- ------------ --------- --------------
LIABILITIES
Dividends payable 427,722 43,134 470,856
Accrued expenses and other payables:
Investment advisory fees 29,039 29,039
Distribution fees - Class I Shares 17,423 17,423
Administration fees 3,952 3,952
Reorganization costs - 34,343 34,343
Compensation 15,000 15,000
Legal fees 10,000 10,000
Due to Liquidity Fund 35,138 35,138
Other fees 6,766 5,842 12,608
--------------- ------------ --------- --------------
Total Liabilities 484,902 109,114 34,343 628,359
--------------- ------------ --------- --------------
Net Assets $ 141,508,190 $ 38,977,650 $ (34,343) $ 180,451,497
=============== ============ ==============
Investments, at cost 139,021,597 139,021,597
COMPOSITION OF NET ASSETS
Capital 144,872,681 56,956,015 201,828,696
Accumulated net investment income (197,130) - (34,343) (231,473)
Accumulated net realized gain (2,975,811) (17,978,365) (20,954,176)
Net unrealized appreciation (191,550) - (191,550)
--------------- ------------ --------- --------------
Net Assets $ 141,508,190 $ 38,977,650 $ (34,343) $ 180,451,497
=============== ============ ==============
SHARES OF BENEFICIAL INTEREST
Shares of Beneficial Interest Outstanding 13,494,302.000 39,890.247 17,209,997.901
=============== ============ ==============
Net Asset Value, redemption price per share $ 10.49 $977.12 $ 10.49
=============== ============ ==============
The accompanying notes are an integral part of these pro forma financial
statements.
S-4
SHORT U.S. GOVERNMENT FUND/FUND ONE
PRO FORMA COMBINED SCHEDULES OF PORTFOLIO INVESTMENTS
APRIL 30, 2005 (UNAUDITED)
SHORT U.S. GOVERNMENT FUND ONE
------------------------------- ------------------------------
PRINCIPAL PRINCIPAL
COST AMOUNT VALUE COST AMOUNT VALUE
---- --------- ----- ---- --------- -----
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES* - 33.9%
1 Yr. Constant Maturity Treasury Based ARMS
Fannie Mae
4.49%, 5/1/26 $ 5,046,898 $ 5,204,931
4.33%, 5/1/27 1,470,234 1,516,110
4.50%, 7/1/27 1,006,411 1,038,197
4.44%, 7/1/28 5,021,372 5,182,729
4.52%, 5/1/31 7,807,841 8,086,346
4.38%, 9/1/33 5,687,769 5,871,683
Freddie Mac
4.37%, 5/1/18 1,557,060 1,596,972
4.00%, 3/1/27 3,132,782 3,228,864
4.40%, 8/1/31 13,905,877 14,356,746
-----------
$46,082,578
HYBRID ARMS
Structured Adjustable Rate Mortgage
Loan Trust, 4.74%, 7/25/34 8,745,186 $ 8,745,186
Wells Fargo Mortgage Backed Securities
Trust, 4.81%, 7/25/34 6,085,339 6,096,749
-----------
$14,841,935
-----------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES* $61,213,514 $60,924,513
FIXED RATE MORTGAGE-RELATED SECURITIES - 36.5%
15 Yr. Securities
Freddie Mac
8.50%, 8/17/07 596,124 $ 605,143
8.00%, 12/17/15 1,266,133 1,331,714
-----------
$ 1,936,857
Collateralized Mortgage Obligations
Fannie Mae
4.50%, 7/25/19 25,000,000 $25,208,595
5.00%, 1/25/28 10,225,000 10,343,284
Freddie Mac
7.00%, 12/15/06 211,137 210,893
5.00%, 7/15/26 15,000,000 15,207,831
6.00%, 3/15/31 12,500,000 12,904,168
-----------
$63,874,771
-----------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES $65,647,804 $65,811,628
U.S. TREASURY OBLIGATIONS - 6.7%
U.S. Treasury Notes
3.63%, 7/15/09 2,000,000 $ 1,983,594
3.38%, 9/15/09 2,000,000 1,962,344
4.75%, 5/15/14 3,000,000 3,127,499
4.25%, 8/15/14 3,000,000 3,013,594
4.25%, 11/15/14 2,000,000 2,006,875
-----------
TOTAL U.S. TREASURY OBLIGATIONS $12,160,279 $12,093,906
S-5
SHORT U.S. GOVERNMENT FUND ONE
------------------------------- ------------------------------
PRINCIPAL PRINCIPAL
COST AMOUNT VALUE COST AMOUNT VALUE
---- --------- ----- ---- --------- -----
REPURCHASE AGREEMENTS - 22.9%
Citigroup, 2.92%, (Agreement dated
4/29/05 to be repurchased at
$2,085,507 on 5/2/05. Collateralized
by various U.S. Government Securities,
3.71%-6.00%, with a value of $2,126,701,
due 10/1/18-12/1/33.) 2,085,000 2,085,000
-----------
Morgan Stanley Dean Witter, Inc. 2.91%
(Agreement dated on 4/29/05 to be
repurchased at $39,054,468 on 5/2/05.
Collaterized by various U.S. Federal
Agencies Securities, 3.67% - 13.25%,
with a value of $39,826,139, due 6/8/05 -
5/1/35.) $39,045,000 $39,045,000
-----------
TOTAL REPURCHASE AGREEMENTS $ 2,085,000 $ 2,085,000 $39,045,000 $39,045,000
------------ ------------ ----------- -----------
Total Investments - 100% $141,106,597 $140,915,047 $39,045,000 $39,045,000
============ ============ =========== ===========
<FN>
- ------------
* The rates presented are the rates in effect at April 30, 2005.
Percentages indicated are based on Pro Forma Total Investments
The accompanying notes are an integral part of these pro forma financial
statements.
</FN>
S-6
PRO FORMA - SHORT U.S. GOVERNMENT
-----------------------------------
PRINCIPAL
COST AMOUNT VALue
---- --------- -----
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES* - 33.9%
1 Yr. Constant Maturity Treasury Based ARMS
Fannie Mae
4.49%, 5/1/26 $ 5,046,898 $ 5,204,931
4.33%, 5/1/27 1,470,234 1,516,110
4.50%, 7/1/27 1,006,411 1,038,197
4.44%, 7/1/28 5,021,372 5,182,729
4.52%, 5/1/31 7,807,841 8,086,346
4.38%, 9/1/33 5,687,769 5,871,683
Freddie Mac
4.37%, 5/1/18 1,557,060 1,596,972
4.00%, 3/1/27 3,132,782 3,228,864
4.40%, 8/1/31 13,905,877 14,356,746
------------
$ 46,082,578
HYBRID ARMS
Structured Adjustable Rate Mortgage
Loan Trust, 4.74%, 7/25/34 8,745,186 8,745,186
Wells Fargo Mortgage Backed Securities
Trust, 4.81%, 7/25/34 6,085,339 6,096,749
------------
$ 14,841,935
------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES* $ 61,213,514 $ 60,924,513
FIXED RATE MORTGAGE-RELATED SECURITIES - 36.5%
15 Yr. Securities
Freddie Mac
8.50%, 8/17/07 596,124 $ 605,143
8.00%, 12/17/15 1,266,133 1,331,714
------------
$ 1,936,857
Collateralized Mortgage Obligations
Fannie Mae
4.50%, 7/25/19 25,000,000 $ 25,208,595
5.00%, 1/25/28 10,225,000 10,343,284
Freddie Mac
7.00%, 12/15/06 211,137 210,893
5.00%, 7/15/26 15,000,000 15,207,831
6.00%, 3/15/31 12,500,000 12,904,168
------------
$ 63,874,771
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES 65,647,804 $ 65,811,628
------------
U.S. TREASURY OBLIGATIONS - 6.7%
U.S. Treasury Notes
3.63%, 7/15/09 2,000,000 $ 1,983,594
3.38%, 9/15/09 2,000,000 1,962,344
4.75%, 5/15/14 3,000,000 3,127,499
4.25%, 8/15/14 3,000,000 3,013,594
4.25%, 11/15/14 2,000,000 2,006,875
------------
TOTAL U.S. TREASURY OBLIGATIONS 12,160,279 $ 12,093,906
S-7
PRO FORMA - SHORT U.S. GOVERNMENT
-----------------------------------
PRINCIPAL
COST AMOUNT VALue
---- --------- -----
REPURCHASE AGREEMENTS - 22.9%
Citigroup, 2.92% (Agreement dated
4/29/05 to be repurchased at
$2,085,507 on 5/2/05. Collateralized
by various U.S. Government Securities,
3.71%-6.00%, with a value of $2,126,701,
due 10/1/18-12/1/33.) 2,085,000 2,085,000
Morgan Stanley Dean Witter, Inc., 2.91%
(Agreement dated on 4/29/05 to be
repurchased at $39,054,468 on 5/2/05.)
Collateralized by various U.S. Federal
Agencies Securities, 3.67%-13.25%, with
a value of $39,826,139, due 6/8/05-5/1/35.) 39,045,000 $ 39,045,000
------------
TOTAL REPURCHASE AGREEMENTS 41,130,000 $ 41,130,000
------------ ------------
Total Investments - 100% $180,151,597 $179,960,047
============ ============
<FN>
- ------------
* The rates presented are the rates in effect at April 30, 2005.
Percentages indicated are based on Pro Forma Total Investments
</FN>
All of the securities held by Fund One at the close of the Reorganization are
expected to comply with the compliance guidelines and/or investment restrictions
of Short U.S. Government Fund.
The accompanying notes are an integral part of these pro forma financial
statements.
S-8
MONEY MARKET FUND/LIQUIDITY FUND
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED APRIL 30, 2005 (UNAUDITED)
MONEY MARKET LIQUIDITY PRO FORMA PRO FORMA COMBINED
FUND FUND ADJUSTMENTS MONEY MARKET FUND
-------------- --------- ----------- ------------------
INVESTMENT INCOME
Interest income $945,105 $3,188,958 $ - $4,134,063
-------- ---------- --------- ----------
EXPENSES
Investment advisory fees 79,251 299,897 379,148
Distribution fees - Class I Shares 50,457 12,825 315,866 379,148
Distribution fees - Class D Shares 115,176 - 115,176
Administration fees 15,850 59,980 75,830
Custodian fees 12,990 51,972 (25,166) 39,796
Transfer agent fees 4,390 1,396 5,786
Legal fees 1,811 19,363 (13,005)(a) 8,169
Printing fees 710 17,901 (15,298)(a) 3,313
Trustees' fees 1,212 20,300 (16,045)(a) 5,467
Compenstation, Taxes, & Benefits 95,011 (95,011)(a)
Occupancy 99,938 (99,938)(a)
Accounting fees 23,891 (23,891)(a)
Equipment and Data Processing 30,982 (30,982)(a)
Insurance 18,033 (18,033)(a)
Federal Income Tax 55,402 (55,402)(a)
Other 29,618 4,621 99,366 133,605
-------- ---------- --------- ----------
Total expenses 311,465 450,239 383,734 1,145,438
-------- ---------- --------- ----------
Less: amounts waived 141,058 89,514 420,537 (b) 651,109
-------- ---------- --------- ----------
Net expenses 170,407 360,725 (36,803) 494,329
-------- ---------- --------- ----------
Net investment income (loss) $774,698 2,828,233 36,803 3,639,734
-------- ---------- --------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized gain (loss) on
transactions from investment transactions
Change in unrealized appreciation/depreciation from
investments
-------- ---------- --------- ----------
Net realized and unrealized gain from investments - - - -
-------- ---------- --------- ----------
Change in net assets resulting from operations $774,698 2,828,233 36,803 3,639,734
======== ========== ========= ==========
<FN>
(a) Reflects the elimination of duplicative fund level fees.
(b) Based on investment adviser and distributor's voluntary undertaking to
waive fees as of April 30, 2005.
The accompanying notes are an integral part of these pro forma financial
statements.
</FN>
S-9
MONEY MARKET FUND/LIQUIDITY FUND
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES
FOR THE TWELVE MONTHS ENDED APRIL 30, 2005 (UNAUDITED)
MONEY MARKET LIQUIDITY PRO FORMA PRO FORMA COMBINED
FUND FUND ADJUSTMENTS MONEY MARKET FUND
-------------- ----------- ----------- ------------------
ASSETS
Investments, at value $ 26,955,596 $ 16,418,913 $ 43,374,509
Repurchase agreements, at cost 19,533,000 75,580,000 95,113,000
--------------- -------------- -------- ----------------
Total investments 46,488,596 91,998,913 - 138,487,509
--------------- -------------- -------- ----------------
Cash 599 432,257 432,856
Accrued interest and dividends receivable 3,169 90,467 93,636
Receivable from Fund One 35,138 35,138
Prepaid Insurance 20,000 20,000
Other assets 10,763 8,038 18,801
--------------- -------------- -------- ----------------
Total Assets $ 46,503,127 $ 92,584,813 $ - $ 139,087,940
--------------- -------------- -------- ----------------
LIABILITIES
Dividends payable 88,829 41,330 130,159
Accrued expenses and other payables:
Investment advisory fees - -
Distribution fees - Class I Shares 7,968 7,968
Administration fees 1,320 1,320
Reorganization costs - 54,559 54,559
Legal fees 3,500 3,500
Deferred Trustee Compensation 9,345 9,345
Other fees 1,195 4,825 6,020
--------------- -------------- -------- ----------------
Total Liabilities 99,312 59,000 54,559 212,871
--------------- -------------- -------- ----------------
Net Assets $ 46,403,815 $ 92,525,813 $ (54,559) $ 138,875,069
=============== ============== ========= ================
Investments, at cost 26,955,596 16,418,913 43,374,509
COMPOSITION OF NET ASSETS
Capital 46,418,966 92,525,813 138,944,779
Accumulated net investment income - (54,559) (54,559)
Accumulated net realized gain (15,151) (15,151)
Net unrealized appreciation - -
--------------- -------------- -------- ----------------
Net Assets $ 46,403,815 $ 92,525,813 $ (54,559) $ 138,875,069
=============== ============== ========= ================
SHARES OF BENEFICIAL INTEREST
Shares of Beneficial Interest
Outstanding 46,415,765.000 92,525,813.000 138,941,578.000
=============== ============== ================
Net Asset Value, redemption price
per share $ 1.00 $ 1,000.00 $ 1.00
=============== ============== ================
S-10
MONEY MARKET LIQUIDITY PRO FORMA PRO FORMA COMBINED
FUND FUND ADJUSTMENTS MONEY MARKET FUND
-------------- ----------- ----------- ------------------
MONEY MARKET FUND - CLASS I
Net Assets $ 30,760,707 $92,525,813 $ (35,240) $ 123,251,280
=============== =========== ========= ================
Shares of Beneficial Interest
Outstanding 30,772,227.000 92,525.813 123,298,040.000
Net Asset Value, redemption price
per share $ 1.00 $ 1,000.00 $1.00
=============== =========== ===============
MONEY MARKET FUND - CLASS D
Net Assets $ 15,643,108 $ (19,319) $ 15,623,789
=============== ========= ================
Shares of Beneficial Interest
Outstanding 15,643,538.000 15,643,538.000
Net Asset Value, redemption price
per share $ 1.00 $ 1.00
=============== ================
The accompanying notes are an integral part of these pro forma financial
statements.
S-11
MONEY MARKET FUND/LIQUIDITY FUND
PRO FORMA COMBINED SCHEDULES OF PORTFOLIO INVESTMENTS
APRIL 30, 2005 (UNAUDITED)
MONEY MARKET LIQUIDITY FUND
------------ --------------
PRINCIPAL PRINCIPAL
COST AMOUNT VALUE COST AMOUNT VALUE
---- --------- ----- ---- --------- -----
AGENCY OBLIGATIONS -- 19.5%
Fannie Mae - Discount Note*
2.68%, 5/4/05 8,000,000 $ 7,998,213
Federal Home Loan Bank
-- Discount Note*
2.65%, 5/4/05 3,000,000 2,999,338
2.73%, 5/12/05 8,000,000 7,993,326
2.81%, 6/23/05 4,000,000 3,983,452
2.81%, 6/30/05 4,000,000 3,981,267
-----------
TOTAL AGENCY OBLIGATIONS $26,955,596 26,955,596
CERTIFICATES OF DEPOSIT - 5.0%
Bank of Fall River, a Cooperative Bank
3.00%, 7/11/05 500,000 500,000
Fidelity Cooperative Bank
3.15%, 7/20/05 500,000 500,000
Mt. Washington Cooperative Bank
3.25%, 5/23/05 300,000 300,000
3.00%, 7/5/05 450,000 450,000
3.25%, 7/5/05 600,000 600,000
NCB, FSB
3.00%, 6/10/05 1,500,000 1,500,000
3.05%, 7/5/05 100,000 100,000
Wakefield Cooperative Bank
3.25%, 5/19/05 3,000,000 3,000,000
-----------
TOTAL CERTIFICATES OF DEPOSIT 6,950,000 6,950,000
FEDERAL FUNDS SOLD - 5.0%
Bank of America 3,381,602 3,381,602
Eastern Bank 3,587,310 3,587,310
-----------
TOTAL FEDERAL FUNDS SOLD 6,968,912 6,968,912
MONEY MARKET FUND - 1.8%
NCB, FSB Money Market 2,500,000 2,500,000
-----------
TOTAL MONEY MARKET FUND 2,500,000 2,500,000
REPURCHASE AGREEMENTS - 68.7%
Citigroup, 2.92% (Agreement dated on
4/29/05 to be repurchased at $19,537,753
on 5/02/05. Collateralized by various U.S.
Government Securities, 3.87%-7.5%, with a
value of $19,923,660, due 2/1/14-5/1/35.) 19,533,000 19,533,000
-----------
S-12
MONEY MARKET LIQUIDITY FUND
------------ --------------
PRINCIPAL PRINCIPAL
COST AMOUNT VALUE COST AMOUNT VALUE
---- --------- ----- ---- --------- -----
Morgan Stanley Dean Witter, Inc., 2.91%
(Agreement dated on 4/29/05 to be
repurchased at $75,598,328 on 5/2/05.
Collateralized by various U.S. Federal
Agencies Securities, 3.25%-13.75%, with
a value of $77,092,003, due 6/22/05-12/1/34.) 75,580,000 75,580,000
-----------
TOTAL REPURCHASE AGREEMENTS 19,533,000 19,533,000 75,580,000 75,580,000
----------- ----------- ----------- -----------
Total Investments - 100.0% $46,488,596 $46,488,596 $91,998,912 $91,998,912
=========== =========== =========== ===========
<FN>
- -------------------
*Effective yield at purchase
Percentages indicated are based on Pro Forma Total Investments
The accompanying notes are an integral part of these pro forma financial
statements.
</FN>
S-13
PRO FORMA-MONEY MARKET
----------------------
PRINCIPAL
COST AMOUNT VALUE
---- --------- -----
AGENCY OBLIGATIONS - 19.5%
Fannie Mae - Discount Note*
2.68%, 5/4/05 8,000,000 $ 7,998,213
Federal Home Loan Bank
- Discount Note*
2.65%, 5/4/05 3,000,000 2,999,338
3.73%, 5/12/05 8,000,000 7,993,326
2.81%, 6/23/05 4,000,000 3,983,452
2.81%, 6/30/05 4,000,000 3,981,267
------------
TOTAL AGENCY OBLIGATIONS $ 26,955,596 $ 26,955,596
CERTIFICATES OF DEPOSIT - 5.0%
Bank of Fall River, a Cooperative Bank
3.00%, 7/11/05 500,000 500,000
Fidelity Cooperative Bank
3.15%, 7/20/05 500,000 500,000
Mt. Washington Cooperative Bank
3.25%, 5/23/05 300,000 300,000
3.00%, 7/5/05 450,000 450,000
3.25%, 7/5/05 600,000 600,000
NCB, FSB
3.00%, 6/10/05 1,500,000 1,500,000
3.05%, 7/5/05 100,000 100,000
Wakefield Cooperative Bank
3.25%, 5/19/05 3,000,000 3,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT 6,950,000 6,950,000
FEDERAL FUNDS SOLD - 5.0%
Bank of America 3,381,602 3,381,602
Eastern Bank 3,587,310 3,587,310
------------
TOTAL FEDERAL FUNDS SOLD 6,968,912 6,968,912
MONEY MARKET FUND - 1.8%
NCB, FSB Money Market 2,500,000 2,500,000
------------
TOTAL MONEY MARKET FUND 2,500,000 2,500,000
REPURCHASE AGREEMENTS - 68.7%
Citigroup, 2.92%, (Agreement dated on
4/29/05 to be repurchased at $19,537,753
on 5/02/05. Collateralized by various U.S.
Government Securities, 3.87%-7.5%, with a
value of $19,923,660, due 2/1/14-5/1/35.) 19,533,000 19,533,000
S-14
Morgan Stanley Dean Witter, Inc., 2.91%
(Agreement dated on 4/29/05 to be
repurchased at $75,598,328 on 5/2/05.
Collateralized by various U.S. Federal
Agencies Securities, 3.25%-13.75%, with
a value of $77,092,003, due 6/22/05-12/1/34.) 75,580,000 75,580,000
------------
TOTAL REPURCHASE AGREEMENTS 95,113,000 95,113,000
------------ ------------
Total Investments - 100.0% $138,487,508 $138,487,508
============ ============
<FN>
- -------------------
*Effective yield at purchase
Percentages indicated are based on Pro Forma Total Investments
</FN>
All of the securities held by Liquidity Fund at the close of the Reorganization
are expected to comply with the compliance guidelines and/or investment
restrictions of Money Market Fund. Two Mt. Washington Cooperative Bank
Certificates of Deposits (3.75%, 10/3/05) with a principal amount of $600,000
and $450,000 are expected to be sold by Liquidity Fund prior to the close of the
Reorganization.
The accompanying notes are an integral part of these pro forma financial
statements.
S-15
ASSET MANAGEMENT FUND
Notes to Pro Forma Financial Statements
(Unaudited)
1. BASIS OF COMBINATION:
---------------------
The unaudited Pro Forma Combined Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of four portfolios. The Short U.S. Government Fund and Money Market
Fund are portfolios of the Asset Management Fund ("AMF"), and Fund One and
Liquidity Fund are portfolios of the Bank Investment Fund ("BIF"). These
statements have been derived from books and records utilized in calculating
daily net asset value as if the proposed reorganization occurred as of and for
the periods ended April 30, 2005.
The Agreement and Plan of Reorganization Agreement provides that on the
Closing Date of the Reorganization, all of the assets and stated liabilities
will be transferred as follows such that at and after the Reorganization, the
assets and stated liabilities of the applicable BIF portfolio ("Acquired Funds")
will become the assets and liabilities of the corresponding AMF portfolio
("Acquiring Funds") as follows:
BANK INVESTMENT FUND (ACQUIRED FUNDS) ASSET MANAGEMENT FUND (ACQUIRING FUNDS)
- ------------------------------------- ---------------------------------------
Fund One Short U.S. Government Fund
Liquidity Fund Money Market Fund
In exchange for the transfer of assets and stated liabilities, the
Acquiring Funds will issue to the Acquired Funds full and fractional shares of
the corresponding Acquiring Funds, and the Acquired Funds will make a
liquidating distribution of such shares to its shareholders. The number of
shares of the Acquiring Funds so issued will be equal in value to the aggregate
net asset value of the Acquired Funds after the declaration and payment of any
dividends on that date. The pro forma statements give effect to the proposed
transfer described above.
Under the purchase method of accounting for business combinations under
generally accepted accounting principles, the Acquiring Funds' basis in the
assets and stated liabilities of the Acquired Funds will be the fair market
value of such assets and liabilities on the Closing Date of the Reorganization.
The Acquiring Funds will recognize no gain or loss for federal income tax
purposes on its issuance of shares in the Reorganization.
For accounting purposes, the Acquiring Funds are the surviving
portfolios of this Reorganization. The pro forma statements reflect the combined
results of operations of the Acquired Funds and the Acquiring Funds. However,
should such Reorganization be effected, the statements of operations of the
Acquiring Funds will not be restated for pre-combination period results of the
corresponding Acquired Funds.
2. USE OF ESTIMATES:
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could differ
from those estimates.
S-16
3. PORTFOLIO VALUATION:
--------------------
MONEY MARKET FUND:
Fund securities are valued under the amortized cost method, which
approximates current market value. Under this method, securities are valued at
cost when purchased and thereafter a constant amortization of any discount or
premium is recorded until maturity of the security. The Fund seeks to maintain
net asset value per share at $1.00.
SHORT U.S. GOVERNMENT FUND:
For purposes of determining the net asset value per share of each Fund,
assets are valued at prices obtained from an independent pricing service, or,
for certain securities, the Board of Trustees has approved the daily use of a
matrix pricing system developed by the Adviser that the Board believes reflects
the fair value of such securities. Securities for which market quotations are
not readily available, and other assets, are valued at fair value using methods
determined in good faith by the Board of Trustees. Short-term instruments
maturing within 60 days of the valuation date may be valued based upon their
amortized cost.
4. SECURITIES TRANSACTIONS AND RELATED INCOME:
-------------------------------------------
Investment transactions are accounted for on the trade date, interest
income is recorded on the accrual basis, including amortization and accretion if
applicable, and the cost of investments sold is determined by use of the
specific identification method for both financial reporting and income tax
purposes.
5. PRO FORMA ADJUSTMENTS AND PRO FORMA COMBINED COLUMNS:
-----------------------------------------------------
The pro forma adjustments and pro forma combined columns of the
Statements of Operations reflect the adjustments necessary to show expenses at
the rates which would have been in effect if the Funds were combined for the
periods ended April 30, 2005. Investment advisory, distribution and
administration fees in the pro forma combined column are calculated at the
projected rates in effect for the Acquiring Funds based upon the combined net
assets of the corresponding Acquired Funds and the Acquiring Funds. Certain pro
forma adjustments were made to estimate the benefit of combining operations of
separate funds into one survivor fund. Actual results could differ from these
estimates.
The pro forma Schedules of Portfolio Investments give effect to the
proposed transfer of such assets as if the Reorganization had occurred at April
30, 2005.
6. EXPENSES:
---------
The expenses of BIF in connection with the Reorganization are estimated
at $90,000. Shay Assets Management, Inc. (or an affiliate) will pay BIF's legal
fees and audit fees in connection with the Reorganization up to a maximum of
$70,000 if the transactions provided for in the Agreement and Plan of
Reorganization are consummated. The BIF Board of Directors approved the payment
by the Acquired Funds of any expenses in excess of the amount to be paid by Shay
Assets Management. Such expenses will be allocated to the Acquired Funds pro
rata based on the net assets of the Acquired Funds.
The expenses of the Acquiring Funds in connection with the
Reorganization are expected to be $110,000 or less. On July 21, 2005, the AMF
Board of Trustees approved the payment by the Acquiring Funds of legitimate fund
expenses and the Board is expected to make a final determination on the actual
amount allowed at a later date. Expenses of the Acquiring Funds not approved by
the Board of Trustees
S-17
will be paid by Shay Assets Management (or an affiliate).
Any expenses paid by the Acquiring Funds will be allocated pro rata on the basis
of the Acquiring Funds' net assets.
S-18
[AMF LOGO] Asset Management Fund
AMF U.S. Government Mortgage Fund
AMF Intermediate Mortgage Fund
AMF Short U.S. Government Fund
AMF Ultra Short Fund
AMF Adjustable Rate Mortgage (ARM) Fund
AMF Money Market Fund
Prospectus
March 1, 2005
Investment Adviser:
Shay Assets Management, Inc.
ASSET MANAGEMENT FUND
SUPPLEMENT DATED JUNE 8, 2005
TO PROSPECTUS DATED MARCH 1, 2005
Effective August 10, 2005, the Adjustable Rate Mortgage (ARM) Fund (the "Fund")
will change its name to the Ultra Short Mortgage Fund. As a result of the name
change, all references in the prospectus to "Adjustable Rate Mortgage (ARM)
Fund" are deleted and replaced with "Ultra Short Mortgage Fund." In addition,
the first sentence of the second paragraph under "Principal Investment
Strategies" on page 4 of the prospectus is deleted and replaced with the
following:
The Fund, under normal market conditions, invests
primarily in mortgage-related investments.
These changes will not affect the Fund's investment objective or the risks
associated with investing in the Fund. The risks associated with investing in
the Fund are interest rate risk, market risk, prepayment risk, extension risk,
management risk, credit risk, issuer risk and government agency risk.
ASSET MANAGEMENT FUND
SUPPLEMENT DATED AUGUST 17, 2005
TO PROSPECTUS DATED MARCH 1, 2005,
AS SUPPLEMENTED JUNE 8, 2005
The section "Trust and Fund Information - Investment Adviser -
Portfolio Managers" on page 18 is deleted and replaced with the following:
PORTFOLIO MANAGERS
The portfolio managers of the Adviser manage the Funds' investments as
a team. The portfolio managers of the Adviser responsible for the
day-to-day management of the Funds' investments are Richard Blackburn,
Kevin T. Blaser, Jon P. Denfeld, David Petrosinelli, Edward E. Sammons,
Jr. and Rodger D. Shay, Jr.
Mr. Blackburn has been Senior Vice President and Senior Portfolio
Manager of the Adviser since 1991. From 1982 to 1991, he was employed
by the Adviser primarily as an account executive and financial
consultant. Mr. Blackburn has 34 years of experience in the securities
industry. His previous employers include Harris Bank, Chicago; Merrill
Lynch; and the First National Bank of Chicago. Mr. Blackburn's primary
focus is in the mortgage securities markets, particularly in the area
of floating and/or adjustable rate securities.
Mr. Blaser, Vice President and Portfolio Manager of the Adviser, joined
the Adviser's fixed income management team in 2003. Prior to joining
the fixed income management team, Mr. Blaser worked for the Portfolio
Strategies Group of the Funds' distributor, Shay Financial Services,
Inc. Before joining Shay in 1998, Mr. Blaser worked for an
institutional broker-dealer in the Detroit, Michigan area. He is
currently a Level II Chartered Financial Analyst (CFA) candidate and
holds a Bachelor of Arts in Economics from Michigan State University.
Mr. Denfeld, Vice President and Portfolio Manager of the Adviser,
joined the Adviser's fixed income portfolio management team in 1996.
From 1993 to 1996, he was employed by Shay Financial Services, Inc., as
an account executive specializing in financial institutions. Mr.
Denfeld's focus is in the government and mortgage securities markets.
He earned a Bachelor of Arts, with a major in Economics, from Fairfield
University and is a Chartered Financial Analyst (CFA) charterholder.
Mr. Petrosinelli, Vice President and Portfolio Manager of the Adviser,
joined the Adviser's fixed income portfolio management team in 1999.
From 1998 to 1999, Mr. Petrosinelli managed the Operating and Bond
Proceed Funds for the Chicago Public Schools, a division of the City of
Chicago. Prior to that, he was Assistant Vice President and Portfolio
Manager for the Celtic Group, an insurance holding company. Mr.
Petrosinelli's primary focus is in the government and mortgage
securities markets. He earned a Bachelor of Science in Finance from
Northeastern University in Boston and a Master of Business
Administration, cum laude, with a concentration in Economics, from
Loyola University in Chicago. Mr. Petrosinelli is also a Chartered
Financial Analyst (CFA) charterholder.
Mr. Sammons, Chairman and Chief Investment Strategist (Fixed Income) of
the Adviser, co-leads with Mr. Shay, Jr. the team that is responsible
for the day-to-day management of the Funds' investments. Mr. Sammons
has been primarily responsible for the Funds' investments since 1985.
Prior to joining the Adviser in 1983, Mr. Sammons spent over 20 years
with the Republic Bank of Dallas and left as a Senior Vice President
and Manager of Fixed Income Securities.
Mr. Shay, Jr., President of the Adviser, co-leads with Mr. Sammons the
team that is responsible for the day-to-day management of the Funds'
investments. Mr. Shay, Jr. joined the fixed income portfolio management
team in 2005 when he became President of the Adviser. He was Senior
Vice President of the Adviser from 1997 to 2005. Mr. Shay, Jr. is an
Interested Trustee of the Trust and the President and Chief Executive
Officer of Shay Financial Services, Inc.
Additional information regarding the portfolio managers' compensation,
other accounts managed by the portfolio managers and the portfolio
managers' ownership of securities in the Funds is available in the
Statement of Additional Information (see "Investment Adviser -
Portfolio Managers" in the Statement of Additional Information).
Dear Investor:
The Asset Management Fund was conceived to provide financial institutions
including Banks, Savings Institutions and Credit Unions with high quality,
professionally managed assets for effective financial management. As you review
this Prospectus, you will note that the Fund's investment objectives are
designed to comply with federal regulatory guidelines necessary for investment
by these financial institutions.
Today, a growing number of institutional investors have become AMF shareholders
recognizing the benefits of a disciplined investment approach emphasizing high
quality mortgage-related and government securities. The AMF Funds provide
investors with a full range of opportunities, from short-term investing for the
liquidity portfolio to longer-term investments designed to provide exposure to
attractive asset classes.
For over 20 years investors have turned to AMF as a key element of their
portfolio management strategies. If you would like to learn more about the Asset
Management Fund, current performance information or to speak with one of our
portfolio managers, you are welcome to call the Fund toll free at
1-800-527-3713.
Sincerely,
<Table>
/s/ RODGER D. SHAY /s/ EDWARD E. SAMMONS, JR.
Rodger D. Shay Edward E. Sammons, Jr.
Chairman of the Board President
</Table>
March 1, 2005
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
[AMF LOGO]
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
MONEY MARKET FUND, CLASS I SHARES*
ADJUSTABLE RATE MORTGAGE (ARM) FUND
ULTRA SHORT FUND
SHORT U.S. GOVERNMENT FUND
INTERMEDIATE MORTGAGE FUND
U.S. GOVERNMENT MORTGAGE FUND
The Securities and Exchange Commission has not approved or disapproved these
securities or passed on the accuracy or adequacy of this prospectus. It is a
federal offense to suggest otherwise.
- ---------------
* Class D Shares of the Money Market Fund are offered in a separate prospectus.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
FUND SUMMARIES.............................................. 2
- -----------------------------------------------------------------
Money Market Fund, Class I Shares...................... 2
Adjustable Rate Mortgage (ARM) Fund.................... 4
Ultra Short Fund....................................... 6
Short U.S. Government Fund............................. 8
Intermediate Mortgage Fund............................. 10
U.S. Government Mortgage Fund.......................... 12
SUMMARY OF PRINCIPAL RISKS.................................. 14
- -----------------------------------------------------------------
INVESTMENT INFORMATION...................................... 15
- -----------------------------------------------------------------
Principal Investment Strategies........................ 15
TRUST AND FUND INFORMATION.................................. 17
- -----------------------------------------------------------------
Investment Adviser..................................... 17
Distributor............................................ 19
NET ASSET VALUE............................................. 19
- -----------------------------------------------------------------
INVESTING IN THE FUNDS...................................... 19
- -----------------------------------------------------------------
Share Purchases........................................ 19
Anti-Money Laundering Program.......................... 20
Minimum Investment Required............................ 21
What Shares Cost....................................... 21
Dividends.............................................. 21
Frequent Purchases and Redemptions of Fund Shares...... 21
Capital Gains.......................................... 22
REDEEMING SHARES............................................ 22
- -----------------------------------------------------------------
Telephone Redemption................................... 22
Written Requests....................................... 22
EXCHANGES................................................... 23
- -----------------------------------------------------------------
SHAREHOLDER INFORMATION..................................... 23
- -----------------------------------------------------------------
Voting Rights.......................................... 23
Disclosure of Information Regarding Portfolio
Holdings.............................................. 23
Federal Income Tax Information......................... 23
FINANCIAL HIGHLIGHTS........................................ 25
- -----------------------------------------------------------------
Money Market Fund, Class I Shares...................... 25
Adjustable Rate Mortgage (ARM) Fund.................... 26
Ultra Short Fund....................................... 26
Short U.S. Government Fund............................. 27
Intermediate Mortgage Fund............................. 27
U.S. Government Mortgage Fund.......................... 28
</Table>
MONEY MARKET FUND, CLASS I SHARES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks to achieve as high a level of current income as is consistent
with the preservation of capital, the maintenance of liquidity and the differing
average maturity of investments held by the Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Fund limits its investments and investment techniques so as to qualify for
investment without specific statutory limitation by national banks, federal
savings associations and federal credit unions under current applicable federal
regulations. The Fund encourages state chartered financial institutions to
consult their legal counsel regarding whether the Fund is a permissible
investment under their state law.
The Fund invests in high quality fixed and variable rate short-term money market
instruments (including assets subject to repurchase agreements) that are
denominated in U.S. dollars, have minimum credit risk and have a remaining
maturity of 397 days or less. The dollar-weighted average maturity of the Fund
is 90 days or less. The Fund is managed to keep its share price stable at $1.00
although there is no assurance that it will be successful in doing so.
Permissible investments include obligations issued or guaranteed by the U.S.
Government or issued or guaranteed by an agency or instrumentality of the U.S.
Government, eligible bankers' acceptances with maturities of ninety days or less
issued by FDIC insured institutions, certificates of deposit and other time
deposits of FDIC insured depository institutions. Although some of these
obligations may be issued by entities chartered or sponsored by Acts of
Congress, the securities of such entities may neither be issued nor guaranteed
by the U.S. Treasury.
PRINCIPAL RISKS
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation ("FDIC") or any other government agency. 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 Fund. Among the principal risks of
investing in the Fund, which could adversely affect its net asset value, yield
and total return, are: *Interest Rate Risk *Market Risk *Management Risk *Credit
Risk *Issuer Risk *Government Agency Risk.
Please see "Summary of Principal Risks" following the Fund Summaries for a
description of these and other risks of investing in the Fund.
FUND PERFORMANCE HISTORY
The following bar charts and tables provide an illustration of how performance
has varied over time. The bar charts depict the change in performance from year
to year during the period indicated. The Fund's past performance does not
necessarily indicate how it will perform in the future. The charts and tables
assume reinvestment of dividends and distributions.
2
SUMMARY
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31 (Class I Shares)
Ticker Symbol:
ASLXX
[MONEY MARKET PORTFOLIO BAR CHART]
<Table>
<Caption>
ANNUAL RETURNS
--------------
1995 5.69
1996 5.19
1997 5.32
1998 5.25
1999 5.04
2000 6.10
2001 3.73
2002 1.42
2003 0.94
2004 1.19
</Table>
During the periods shown in the bar chart, the highest return for a quarter was
1.57% (quarter ended 12/31/00) and the lowest return for a quarter was 0.21%
(quarter ended 6/30/04).
AVERAGE ANNUAL TOTAL RETURNS, (years ended December 31, 2004)
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Money Market Fund, Class I Shares........................... 1.19% 2.66% 3.97%
</Table>
The Money Market Fund's (Class I Shares) 7-day yield ended on December 31, 2004
was 1.96%. To obtain the Fund's current 7-day yield information, please call us
toll-free at 1-800-527-3713.
FEES AND EXPENSES:
THIS SECTION DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES. The Fund does not impose shareholder fees. These are the fees
charged directly to an investor's account. Examples of shareholder fees include
sales loads, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, shareholder
servicing, accounting and other services. You do not pay these fees directly
but, as the example shows, these costs are borne indirectly by shareholders.
<Table>
SHAREHOLDER FEES............................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fee................................................ 0.15%*
12b-1 Fees.................................................. 0.15%*
Other Expenses.............................................. 0.11%
-----
Total Fund Operating Expenses............................... 0.41%*
=====
</Table>
- ---------------
* This table and the following example have been prepared to illustrate Annual
Fund Operating Expenses, assuming no fee waivers. For the fiscal year ended
October 31, 2004, the Distributor and Adviser voluntarily waived their entire
fees so that "Total Fund Operating Expenses" for the Class I Shares of the
Money Market Fund were 0.11% of average daily net assets. Effective November
1, 2004, the Distributor is waiving 0.10% of its 12b-1 Fee so that the "12b-1
Fees" for the Class I Shares of the Money Market Fund are 0.05% of average
daily net assets. The Adviser and Distributor expect to continue to waive fees
throughout the year, but are not obligated to do so.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, reinvest all
dividends and distributions, and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$42 $132 $230 $518
</Table>
3
ADJUSTABLE RATE MORTGAGE (ARM) FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks to achieve as high a level of current income as is consistent
with the preservation of capital, the maintenance of liquidity and the differing
average maturity of investments held by the Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Fund limits its investments and investment techniques so as to qualify for
investment without specific statutory limitation by national banks, federal
savings associations and federal credit unions under current applicable federal
regulations. The Fund encourages state chartered financial institutions to
consult their legal counsel regarding whether the Fund is a permissible
investment under their state law.
The Fund, under normal market conditions, invests primarily in high quality
adjustable rate mortgage investments and related instruments. The Adviser
expects that a portfolio of these types of securities will generally provide
higher current yields than money market securities or alternative investments of
comparable quality and market rate volatility. Under normal market and interest
rate conditions, the Fund's target duration is no shorter than that of a 6-Month
U.S. Treasury Bill and no longer than that of a 1-Year U.S. Treasury Note, and
its maximum duration is equal to that of a 2-Year U.S. Treasury Note. The Fund
has no restriction as to the minimum or maximum maturity of any particular
investment held.
In addition to mortgage-related investments, the Fund may invest in U.S.
Government or agency securities, certificates of deposit and other time deposits
of FDIC insured depository institutions, repurchase agreements collateralized by
obligations of the U.S. government or other obligations that are not subject to
any investment limitation on the part of national banks, and eligible bankers'
acceptances with maturities of ninety days or less issued by FDIC insured
institutions. Although some of the securities the Fund invests in may be issued
by entities chartered or sponsored by Acts of Congress, the securities of such
entities may neither be issued nor guaranteed by the U.S. Treasury.
The Fund invests primarily in "securities backed by or representing an interest
in mortgages on domestic residential housing or manufactured housing" meeting
the definition of such assets for purposes of the qualified thrift lender
("QTL") test under the current Office of Thrift Supervision ("OTS") Regulations.
Pending any revisions of the current OTS Regulations, the Fund expects that,
absent extraordinary market developments, at least 65% of its assets will
qualify for QTL purposes for savings associations, although actual percentages
may be higher. In addition the Fund does not purchase any investments having a
risk-based weighting in excess of 20% under the current risk-based capital
regulations established by the OTS. Also, the Fund does not purchase any
investments having a risk-based weighting for banks in excess of 20% under
current federal regulations of the appropriate regulatory agencies.
PRINCIPAL RISKS
It is possible to lose money by investing in the Fund. Among the principal risks
of investing in the Fund, which could adversely affect its net asset value,
yield and total return, are: *Interest Rate Risk *Market Risk *Prepayment Risk
*Extension Risk *Management Risk *Credit Risk *Issuer Risk *Government Agency
Risk.
Please see "Summary of Principal Risks" following the Fund Summaries for a
description of these and other risks of investing in the Fund.
FUND PERFORMANCE HISTORY
The following bar charts and tables provide an illustration of how performance
has varied over time. The bar charts depict the change in performance from year
to year during the period indicated. The Fund's past performance (before and
after taxes) does not necessarily indicate how it will perform in the future.
The chart and table assume reinvestment of dividends and distributions.
4
SUMMARY
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Ticker Symbol:
ASARX
[ADJUSTABLE RATE MORTGAGE (ARM) PORTFOLIO BAR CHART]
<Table>
<Caption>
ANNUAL RETURNS
--------------
1995 9.12
1996 5.92
1997 6.51
1998 5.14
1999 4.66
2000 7.13
2001 5.95
2002 3.22
2003 1.49
2004 1.67
</Table>
During the periods shown in the bar chart, the highest return for a quarter was
2.95% (quarter ended 3/31/95) and the lowest return for a quarter was -0.08%
(quarter ended 9/30/03).
AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 2004, to a broad-based
securities market index (which, unlike the Fund, has no fees or expenses).
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Adjustable Rate Mortgage (ARM) Fund (before taxes).......... 1.67% 3.87% 5.06%
ARM Fund (after taxes on distributions)..................... 0.83% 2.36% 3.10%
ARM Fund (after taxes on distributions and redemptions)..... 1.08% 2.37% 3.09%
The Lehman 6 Mo. T-Bill Bellwethers*........................ 1.25% 3.29% 4.47%
</Table>
- ---------------
* The Lehman 6 Mo. T-Bill Bellwethers Index is an unmanaged index comprised of
U.S. Government Treasury Bonds with an average maturity of six months. The
Index reflects no deduction for fees, expenses or taxes. After-tax returns are
calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes. Actual after-tax
returns depend on an investor's tax situation and may differ from those shown.
FEES AND EXPENSES:
THIS SECTION DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES. The Fund does not impose shareholder fees. These are the fees
charged directly to an investor's account. Examples of shareholder fees include
sales loads, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, shareholder
servicing, accounting and other services. You do not pay these fees directly
but, as the example shows, these costs are borne indirectly by shareholders.
<Table>
SHAREHOLDER FEES............................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fee................................................ 0.43%*
12b-1 Fees.................................................. 0.25%*
Other Expenses.............................................. 0.04%
-----
Total Fund Operating Expenses............................... 0.72%*
=====
</Table>
- ---------------
* The fee table and the following example have been prepared to illustrate
Annual Fund Operating Expenses assuming no fee waivers. The Adviser and the
Distributor are currently voluntarily waiving 0.18% and 0.10% of their fees,
respectively, so that the "Advisory Fee," "12b-1 Fees" and "Total Fund
Operating Expenses" for the Fund were 0.25%, 0.15% and 0.44%, respectively,
for the fiscal year ended October 31, 2004. The Adviser and Distributor expect
to continue these waivers throughout the year, but are not obligated to do so.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, reinvest all
dividends and distributions, and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$74 $230 $401 $894
</Table>
5
ULTRA SHORT FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks to achieve current income with a very low degree of share-price
fluctuation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund limits its investments and investment techniques so as to qualify for
investment by national banks and federal savings associations subject to
applicable regulatory limits. The Fund encourages state chartered financial
institutions to consult their legal counsel regarding whether the Fund is a
permissible investment under their state law.
The Fund invests primarily in fixed and variable rate mortgage-related
investments, debt securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities, asset-backed investments, investment grade
corporate debt securities, money market and other debt instruments. Although
some of these securities may be issued by entities chartered or sponsored by
Acts of Congress, the securities of such entities may neither be issued nor
guaranteed by the U.S. Treasury. The Fund intends to invest to a significant
degree in mortgage-related securities.
Under normal market and interest rate conditions, the Fund's target duration is
not expected to exceed one year. The Fund has no restriction on the minimum or
maximum maturity of any particular investment held.
Other investments and investment techniques the Fund may use include fixed and
variable rate debt instruments such as commercial paper rated in one of the two
highest rating categories by either Moody's Investors Service, Inc. or Standard
and Poor's Rating Service, inflation-indexed bonds issued both by governments
and corporations, structured notes, certificates of deposit and other time
deposits of FDIC insured depository institutions, and eligible bankers'
acceptances with maturities of ninety days or less issued by FDIC insured
institutions, repurchase agreements collateralized by obligations of the U.S.
government or other obligations that are not subject to any investment
limitation on the part of national banks, municipal bonds, reverse repurchase
agreements and mortgage dollar rolls, when-issued securities and covered short
sales. The Fund may, but is not required to, use financial contracts for risk
management purposes as part of its investment strategies. Some financial
contracts are commonly referred to as derivatives. These investments will be
used for bona fide hedging purposes, as is consistent with their permissible use
in the portfolio of a national bank or federally chartered thrift.
PRINCIPAL RISKS
It is possible to lose money by investing in the Fund. Among the principal risks
of investing in the Fund, which could adversely affect its net asset value,
yield and total return, are: *Interest Rate Risk *Market Risk *Prepayment Risk
*Extension Risk *Credit Risk *Hedging Risk *Management Risk *Issuer Risk
*Government Agency Risk.
Please see "Summary of Principal Risks" following the Fund Summaries for a
description of these and other risks of investing in the Fund.
FUND PERFORMANCE HISTORY
The following bar charts and tables provide an illustration of how performance
has varied over time. The bar charts depict the change in performance from year
to year during the period indicated. The Fund's past performance (before and
after taxes) does not necessarily indicate how it will perform in the future.
The chart and table assume reinvestment of dividends and distributions.
6
SUMMARY
- --------------------------------------------------------------------------------
Annual Returns for the Year Ended December 31
Ticker Symbol:
AULTX
[BAR CHART]
<Table>
<Caption>
ANNUAL RETURNS
--------------
"
"
"
"
"
"
"
2002 2.50
2003 1.71
2004 1.72
</Table>
During the period shown in the bar chart, the highest return for a quarter was
0.90% (quarter ended 6/30/02) and the lowest return for a quarter was -0.28%
(quarter ended 6/30/04).
AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 2004, to a broad-based
securities market index (which, unlike the Fund, has no fees or expenses).
<Table>
<Caption>
1 YEAR SINCE INCEPTION*
------ ----------------
Ultra Short Fund (before taxes)............................. 1.72% 2.02%
Ultra Short Fund (after taxes on distributions)............. 0.87% 1.11%
Ultra Short Fund (after taxes on distributions and
redemptions).............................................. 1.12% 1.18%
The Lehman 6 Mo. T-Bill Bellwethers**....................... 1.25% 1.60%
</Table>
- ---------------
* The Fund commenced operations on November 14, 2001.
** The Lehman 6 Month T-Bill Bellwethers Index is an unmanaged index comprised
of U.S. Government Treasury Bonds with an average maturity of six months. The
Index reflects no deduction for fees, expenses or taxes. After-tax returns
are calculated using the historical highest individual federal marginal
income tax rates and do not reflect the impact of state and local taxes.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown.
FEES AND EXPENSES:
THIS SECTION DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES. The Fund does not impose shareholder fees. These are the fees
charged directly to an investor's account. Examples of shareholder fees include
sales loads, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, shareholder
servicing, accounting and other services. You do not pay these fees directly
but, as the example shows, these costs are borne indirectly by shareholders.
<Table>
SHAREHOLDER FEES............................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fee................................................ 0.45%*
12b-1 Fees.................................................. 0.25%*
Other Expenses.............................................. 0.07%
-----
Total Fund Operating Expenses............................... 0.77%*
=====
</Table>
- ---------------
* The fee table and the following example have been prepared to illustrate
Annual Fund Operating Expenses assuming no fee waivers. The Adviser and the
Distributor are currently voluntarily waiving 0.20% and 0.10% of their fees,
respectively, so that the "Advisory Fee," "12b-1 Fees" and "Total Fund
Operating Expenses" were 0.25%, 0.15% and 0.47%, respectively for the fiscal
year ended October 31, 2004. The Adviser and Distributor expect to continue
these waivers throughout the year, but are not obligated to do so.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, reinvest all
dividends and distributions, and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Ultra Short Fund............................. $79 $246 $428 $954
</Table>
7
SHORT U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks to achieve as high a level of current income as is consistent
with the preservation of capital, the maintenance of liquidity and the differing
average maturity of investments held by the Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Fund limits its investments and investment techniques so as to qualify for
investment without specific statutory limitation by national banks, federal
savings associations and federal credit unions under current applicable federal
regulations. The Fund encourages state chartered financial institutions to
consult their legal counsel regarding whether the Fund is a permissible
investment under their state law.
The Fund invests only in high quality fixed and variable rate assets (including
repurchase agreements collateralized by obligations of the U.S. government or
other obligations that are not subject to any investment limitation on the part
of national banks) and under normal market conditions, invests primarily in U.S.
Government obligations, which consist of obligations issued or guaranteed by the
U.S. Government and its agencies or instrumentalities. Although some of these
obligations may be issued by entities chartered or sponsored by Acts of
Congress, the securities of such entities may neither be issued nor guaranteed
by the U.S. Treasury. Under normal market and interest rate conditions, the Fund
seeks to maintain a minimum duration of a 1-Year U.S. Treasury Note, and a
maximum duration equal to that of a 3-Year U.S. Treasury Note. The Fund has no
restriction as to the minimum or maximum maturity of any particular investment
held by it. Other investments include eligible bankers' acceptances with
maturities of ninety days or less issued by FDIC insured institutions,
certificates of deposit and other time deposits of FDIC insured depository
institutions.
The Fund does not purchase any investments having a risk-based weighting in
excess of 20% under the current risk-based capital regulations established by
the OTS. Also, the Fund does not purchase any investments having a risk-based
weighting for banks in excess of 20% under current federal regulations of the
appropriate regulatory agencies.
PRINCIPAL RISKS
It is possible to lose money by investing in the Fund. Among the principal risks
of investing in the Fund, which could adversely affect its net asset value,
yield and total return, are: *Interest Rate Risk *Market Risk *Prepayment Risk
*Extension Risk *Management Risk *Credit Risk *Issuer Risk *Government Agency
Risk.
Please see "Summary of Principal Risks" following the Fund Summaries for a
description of these and other risks of investing in the Fund.
FUND PERFORMANCE HISTORY
The following bar charts and tables provide an illustration of how performance
has varied over time. The bar charts depict the change in performance from year
to year during the period indicated. The Fund's past performance (before and
after taxes) does not necessarily indicate how it will perform in the future.
The chart and table assume reinvestment of dividends and distributions.
8
SUMMARY
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Ticker Symbol:
ASITX
[SHORT U.S. GOVERNMENT SECURITIES PORTFOLIO BAR CHART]
<Table>
<Caption>
ANNUAL RETURNS
--------------
1995 11.35
1996 3.61
1997 6.25
1998 6.60
1999 2.38
2000 7.74
2001 7.35
2002 4.63
2003 1.87
2004 1.46
</Table>
During the periods shown in the bar chart, the highest return for a quarter was
3.44% (quarter ended 6/30/95) and the lowest return for a quarter was -1.13%
(quarter ended 6/30/04).
AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 2004, to a broad-based
securities market index (which, unlike the Fund, has no fees or expenses).
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Short U.S. Government Fund (before taxes)................... 1.46% 4.58% 5.28%
Short U.S. Government Fund (after taxes on distributions)... 0.45% 3.00% 3.28%
Short U.S. Government Fund (after taxes on distributions and
redemptions).............................................. 0.94% 2.94% 3.26%
The Lehman Short Government 1-3 Year Index*................. 1.06% 5.11% 5.79%
</Table>
- ---------------
* The Lehman Short Government 1-3 Year Index is an unmanaged index generally
representative of government and investment-grade corporate securities with
maturities of one to three years. The Index reflects no deduction for fees,
expenses or taxes. After-tax returns are calculated using the historical
highest individual federal marginal income tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on an
investor's tax situation and may differ from those shown.
FEES AND EXPENSES:
THIS SECTION DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES. The Fund does not impose shareholder fees. These are the fees
charged directly to an investor's account. Examples of shareholder fees include
sales loads, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, shareholder
servicing, accounting and other services. You do not pay these fees directly
but, as the example shows, these costs are borne indirectly by shareholders.
<Table>
SHAREHOLDER FEES............................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fee................................................ 0.25%
12b-1 Fees.................................................. 0.15%
Other Expenses.............................................. 0.08%
-----
Total Fund Operating Expenses............................... 0.48%
=====
</Table>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, reinvest all
dividends and distributions, and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$49 $154 $269 $604
</Table>
9
INTERMEDIATE MORTGAGE FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks to achieve as high a level of current income as is consistent
with the preservation of capital, the maintenance of liquidity and the differing
average maturity of investments held by the Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Fund limits its investments and investment techniques so as to qualify for
investment without specific statutory limitation by national banks, federal
savings associations and federal credit unions under current applicable federal
regulations. The Fund encourages state chartered financial institutions to
consult their legal counsel regarding whether the Fund is a permissible
investment under their state law.
The Fund invests, under normal market conditions, primarily in
intermediate-term, mortgage-related investments issued or guaranteed by the U.S.
Government and its agencies or instrumentalities, paying fixed or adjustable
rates of interest. Although some of these securities may be issued by entities
chartered or sponsored by Acts of Congress, the securities of such entities may
neither be issued nor guaranteed by the U.S. Treasury. The Fund has no
restriction as to the minimum or maximum maturity of any particular investment
held. Under normal market and interest rate conditions, the Fund seeks to
maintain a minimum duration of a 2-Year U.S. Treasury Note, and a maximum
duration equal to that of a 4-Year U.S. Treasury Note.
In addition to mortgage-related investments, the Fund may invest in U.S.
Government or agency securities, certificates of deposit and other time deposits
of FDIC insured depository institutions, repurchase agreements collateralized by
obligations of the U.S. government or other obligations that are not subject to
any investment limitation on the part of national banks and eligible bankers'
acceptances with maturities of ninety days or less issued by FDIC insured
institutions.
The Fund invests primarily in "securities backed by or representing an interest
in mortgages on domestic residential housing or manufactured housing" meeting
the definition of such assets for purposes of the qualified thrift lender
("QTL") test under the current Office of Thrift Supervision ("OTS") Regulations.
Pending any revisions of the current OTS Regulations, the Fund expects that,
absent extraordinary market developments, at least 65% of its assets will
qualify for QTL purposes for savings associations, although actual percentages
may be higher. In addition, the Fund does not purchase any investments having a
risk-based weighting in excess of 20% under the current risk-based capital
regulations established by the OTS. Also, the Fund does not purchase any
investments having a risk-based weighting for banks in excess of 20% under
current federal regulations of the appropriate regulatory agencies.
PRINCIPAL RISKS
It is possible to lose money by investing in the Fund. Among the principal risks
of investing in the Fund, which could adversely affect its net asset value,
yield and total return, are: *Interest Rate Risk *Market Risk *Prepayment Risk
*Extension Risk *Management Risk *Credit Risk *Issuer Risk *Government Agency
Risk.
Please see "Summary of Principal Risks" following the Fund Summaries for a
description of these and other risks of investing in the Fund.
FUND PERFORMANCE HISTORY
The following bar charts and tables provide an illustration of how performance
has varied over time. The bar charts depict the change in performance from year
to year during the period indicated. The Fund's past performance (before and
after taxes) does not necessarily indicate how it will perform in the future.
The chart and table assume reinvestment of dividends and distributions.
10
SUMMARY
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Ticker Symbol:
ASCPX
[INTERMEDIATE MORTGAGE SECURITIES PORTFOLIO BAR CHART]
<Table>
<Caption>
ANNUAL RETURNS
--------------
1995 13.90
1996 2.86
1997 8.37
1998 6.90
1999 1.48
2000 9.74
2001 7.27
2002 5.63
2003 1.55
2004 2.16
</Table>
During the period shown in the bar chart, the highest return for a quarter was
4.14% (quarter ended 6/30/95) and the lowest return for a quarter was -1.68%
(quarter ended 6/30/04).
AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 2004, to a broad-based
securities market index (which, unlike the Fund, has no fees or expenses).
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Intermediate Mortgage Fund (before taxes)................... 2.16% 5.23% 5.92%
Intermediate Mortgage Fund (after taxes on distributions)... 0.92% 3.44% 3.71%
Intermediate Mortgage Fund (after taxes on distributions and
redemptions).............................................. 1.39% 3.36% 3.67%
The Lehman Mortgage Index*.................................. 4.70% 7.14% 7.56%
</Table>
- ---------------
* The Lehman Mortgage Index is a broad-based unmanaged index that represents the
general performance of fixed rate mortgage bonds. The Index reflects no
deduction for fees, expenses or taxes. After-tax returns are calculated using
the historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor's tax situation and may differ from those shown.
FEES AND EXPENSES:
THIS SECTION DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES. The Fund does not impose shareholder fees. These are the fees
charged directly to an investor's account. Examples of shareholder fees include
sales loads, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES are paid out of a Fund's assets and include fees
for portfolio management, maintenance of shareholder accounts, shareholder
servicing, accounting and other services. You do not pay these fees directly
but, as the example shows, these costs are borne indirectly by shareholders.
<Table>
SHAREHOLDER FEES............................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fee................................................ 0.35%*
12b-1 Fees.................................................. 0.15%
Other Expenses.............................................. 0.07%
-----
Total Fund Operating Expenses............................... 0.57%*
=====
</Table>
- ---------------
* The fee table and the following example have been prepared to illustrate
Annual Fund Operating Expenses assuming no fee waivers. The Adviser is
currently voluntarily waiving 0.10% of its advisory fee, so that the "Advisory
Fee" and "Total Fund Operating Expenses" for the Fund were 0.25% and 0.47%,
respectively, for the fiscal year ended October 31, 2004. The Adviser expects
to continue this waiver throughout the year, but is not obligated to do so.
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, reinvest all
dividends and distributions, and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that a Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$58 $183 $318 $714
</Table>
11
U.S. GOVERNMENT MORTGAGE FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks to achieve as high a level of current income as is consistent
with the preservation of capital, the maintenance of liquidity and the differing
average maturity of investments held by the Fund.
PRINCIPAL INVESTMENT STRATEGIES
The Fund limits its investments and investment techniques so as to qualify for
investment without specific statutory limitation by national banks, federal
savings associations and federal credit unions under current applicable federal
regulations. The Fund encourages state chartered financial institutions to
consult their legal counsel regarding whether the Fund is a permissible
investment under their state law.
The Fund invests, under normal market conditions, primarily in mortgage-related
securities issued or guaranteed by the U.S. Government and its agencies or
instrumentalities, paying fixed or adjustable rates of interest. Although some
of the securities the Fund invests in may be issued by entities chartered or
sponsored by Acts of Congress, the securities of such entities may neither be
issued nor guaranteed by the U.S. Treasury. The Fund has no restriction as to
the minimum or maximum maturity of any particular instrument held. Under normal
market and interest rate conditions, the Fund seeks to maintain a minimum
duration of a 2-Year U.S. Treasury Note, and a maximum duration equal to that of
a 6-Year U.S. Treasury Note.
In addition to mortgage-related investments, the Fund may invest in U.S.
Government or agency securities, certificates of deposit and other time deposits
of FDIC insured depository institutions, repurchase agreements collateralized by
obligations of the U.S. government or other obligations that are not subject to
any investment limitation on the part of national banks, and eligible bankers'
acceptances with maturities of ninety days or less issued by FDIC insured
institutions.
The Fund invests primarily in "securities backed by or representing an interest
in mortgages on domestic residential housing or manufactured housing" meeting
the definition of such assets for purposes of the qualified thrift lender
("QTL") test under the current Office of Thrift Supervision ("OTS") Regulations.
Pending any revisions of the current OTS Regulations, the Fund expects that,
absent extraordinary market developments, at least 65% of its assets will
qualify for QTL purposes for savings associations, although actual percentages
may be higher. In addition the Fund does not purchase any investments having a
risk-based weighting in excess of 20% under the current risk-based capital
regulations established by the OTS. Also the Fund does not purchase any
investments having a risk-based weighting for banks in excess of 20% under
current federal regulations of the appropriate regulatory agencies.
PRINCIPAL RISKS
It is possible to lose money by investing in the Fund. Among the principal risks
of investing in the Fund, which could adversely affect its net asset value,
yield and total return, are: *Interest Rate Risk *Market Risk *Prepayment Risk
*Extension Risk *Management Risk *Credit Risk *Issuer Risk *Government Agency
Risk.
Please see "Summary of Principal Risks" following the Fund Summaries for a
description of these and other risks of investing in the Fund.
FUND PERFORMANCE HISTORY
The following bar charts and tables provide an illustration of how performance
has varied over time. The bar charts depict the change in performance from year
to year during the period indicated. The Fund's past performance (before and
after taxes) does not necessarily indicate how it will perform in the future.
The chart and table assume reinvestment of dividends and distributions.
12
SUMMARY
- --------------------------------------------------------------------------------
Annual Returns for the Years Ended December 31
Ticker Symbol:
ASMTX
[U.S. GOVERNMENT MORTGAGE SECURITIES PORTFOLIO BAR CHART]
<Table>
<Caption>
ANNUAL RETURNS
--------------
1995 16.16
1996 2.83
1997 9.67
1998 7.04
1999 0.59
2000 10.48
2001 6.74
2002 7.13
2003 2.29
2004 3.70
</Table>
During the period shown in the bar chart, the highest return for a quarter was
4.49% (quarter ended 6/30/95) and the lowest return for a quarter was -1.88%
(quarter ended 3/31/96).
AVERAGE ANNUAL TOTAL RETURNS. The following table compares the Fund's average
annual returns for the periods ended December 31, 2004, to a broad-based
securities market index (which, unlike the Fund, has no fees or expenses).
<Table>
<Caption>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
U.S. Government Mortgage Fund (before taxes)................ 3.70% 6.03% 6.58%
U.S. Government Mortgage Fund (after taxes on
distributions)............................................ 2.16% 4.02% 4.14%
U.S. Government Mortgage Fund (after taxes on distributions
and redemptions).......................................... 2.39% 3.92% 4.10%
The Lehman Mortgage Index*.................................. 4.70% 7.14% 7.56%
</Table>
- ---------------
* The Lehman Mortgage Index is a broad-based unmanaged index that represents the
general performance of fixed rate mortgage bonds. The Index reflects no
deduction for fees, expenses or taxes. After-tax returns are calculated using
the historical highest individual federal marginal income tax rates and do not
reflect the impact of state and local taxes. Actual after-tax returns depend
on an investor's tax situation and may differ from those shown.
FEES AND EXPENSES:
THIS SECTION DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
SHAREHOLDER FEES. The Fund does not impose shareholder fees. These are the fees
charged directly to an investor's account. Examples of shareholder fees include
sales loads, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES are paid out of the Fund's assets and include
fees for portfolio management, maintenance of shareholder accounts, shareholder
servicing, accounting and other services. You do not pay these fees directly
but, as the example shows, these costs are borne indirectly by shareholders.
<Table>
SHAREHOLDER FEES............................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Advisory Fee................................................ 0.25%
12b-1 Fees.................................................. 0.15%
Other Expenses.............................................. 0.07%
-----
Total Fund Operating Expenses............................... 0.47%
=====
</Table>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, reinvest all
dividends and distributions, and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
$48 $151 $263 $591
</Table>
13
SUMMARY OF PRINCIPAL RISKS
- --------------------------------------------------------------------------------
CREDIT RISK Securities are generally affected by varying degrees
of credit risk. A security's credit risk is
reflected in its credit rating. Credit risk arises
in a number of ways. For instance, the Fund could
lose money if the issuer or guarantor of a security,
or the counterparty to a financial contract,
repurchase agreement or a loan of portfolio
securities, is unable or unwilling to make timely
principal and/or interest payments, or to otherwise
honor its obligations.
EXTENSION RISK During periods of rising interest rates, property
owners may prepay their mortgages more slowly than
expected, resulting in slower prepayments of
mortgage-backed securities, which increases the
duration of a security and reduces its value.
GOVERNMENT AGENCY RISK Some obligations issued or guaranteed by U.S.
Government agencies or instrumentalities are not
backed by the full faith and credit of the U.S.
Government; the Fund must look principally to the
agencies or instrumentalities for ultimate
repayment, and may not be able to assert claims
against the U.S. Government itself if those agencies
or instrumentalities do not meet their commitments.
HEDGING RISK The Ultra Short Fund may use financial contracts in
a manner consistent with their permissible use in
the portfolio of a national bank or federally
chartered thrift. Some financial contracts are
commonly referred to as derivatives. Financial
contracts involve the risk of mispricing or improper
valuation and the risk that changes in the value of
the financial contract may not correlate perfectly
with the underlying asset, rate or index. Hedging
also involves the risk that the Investment Adviser
is incorrect in its expectation of what an
appropriate hedging position would be. Also the Fund
may not hedge when it would have been beneficial to
do so.
INTEREST RATE RISK Normally, the values of fixed income securities vary
inversely with changes in prevailing interest rates.
With rising interest rates, fixed income securities
held by the Fund tend to decrease in value. Also,
securities with longer durations held by the Fund
are generally more sensitive to interest rate
changes. As such, securities with longer durations
are usually more volatile than those with shorter
durations.
ISSUER RISK A security may lose value as a result of a number of
factors. These factors include capital structure
(particularly the issuer's use of leverage),
management performance and a diminished market for
the issuer's products and/or services.
MANAGEMENT RISK The Fund is subject to management risk due to the
active nature of its management. The Investment
Adviser and the portfolio managers will apply
investment techniques, their experience and risk
analyses in making investment decisions for the
Fund. However, there is no guarantee that the
techniques and analyses applied by either the
Investment Adviser and/or the portfolio managers
will achieve the investment objective.
MARKET RISK The value of the securities owned by the Fund can
increase and decrease quickly at unexpected times.
The value can change as the result of a number of
factors, including market-wide risks,
industry-specific risk (i.e. labor shortages and/or
stoppages, greater costs of production and/or
competitive forces or conditions) or idiosyncratic
risk. A security backed by the U.S. Treasury or the
full faith and credit of the United States is
guaranteed only as to the timely payment of interest
and principal when held to maturity and not as to
market value. Equity securities generally have
greater price volatility than fixed income
securities.
14
PREPAYMENT RISK During periods of declining interests rates,
property owners may prepay their mortgages more
quickly than expected thereby reducing the potential
appreciation of fixed rate, asset-backed securities.
INVESTMENT INFORMATION
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
Securities Selection
In selecting securities, the Investment Adviser develops an outlook for interest
rates and the economy and analyzes credit and call risks. The Investment Adviser
varies the quality, sector and maturity of the securities selected for the Funds
based upon the Investment Adviser's analysis of financial market conditions and
the outlook for the U.S. economy.
The Investment Adviser attempts to identify areas of the bond market that are
undervalued relative to the rest of the market. The Investment Adviser
identifies these areas by grouping bonds into sectors such as: money markets,
governments, corporates, mortgages and asset-backed securities. Once investment
opportunities are identified, the Investment Adviser will shift assets among
sectors depending upon changes in relative valuations, credit spreads and upon
historical yield or price relationships. There is no guarantee that the
Investment Adviser's security selection techniques will achieve a Fund's
investment objective.
Mortgage-Related and Asset-Backed Securities
Each Fund, except the Money Market Fund, may invest in mortgage-related
securities and may invest all of its assets in such securities. Mortgage-related
securities include fixed rate and adjustable-rate mortgage pass-through
securities and fixed rate and variable rate collateralized mortgage obligations
("CMOs").
The Ultra Short Fund may also invest in asset-backed securities, commercial
mortgage-backed securities, stripped mortgage-backed securities ("SMBSs") and
other securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans on real property. Asset-backed
securities are securities backed by notes or receivables against assets other
than real estate. Some examples are autos, credit cards and royalties.
Private mortgage-related securities represent interests in, or are
collateralized by, pools consisting principally of residential mortgage loans
created by non-governmental issuers. These securities generally offer a higher
rate of interest than governmental and government-related, mortgage-related
securities because there are no direct or indirect government guarantees of
payment as in the former securities, although certain credit enhancements may
exist. Securities issued by private organizations may not have the same degree
of liquidity as those with direct or indirect government guarantees. Private
mortgage-related securities purchased by the Funds must be rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization.
The value of some mortgage- or asset-backed securities may be particularly
sensitive to changes in prevailing interest rates. Early repayment of principal
on some mortgage-related securities may expose a Fund to a lower rate of return
upon reinvestment of principal. When interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
are declining, the value of mortgage-related securities with prepayment features
may not increase as much as other fixed income securities. The rate of
prepayments on underlying mortgages will affect the price and volatility of a
mortgage-related security, and may shorten or extend the effective maturity of
the security beyond what was anticipated at the time of purchase. If
unanticipated rates of prepayment on underlying mortgages increase the effective
maturity of a mortgage-related security, the volatility of the security can be
expected to increase. The value of these securities may fluctuate in response to
the market's perception of the creditworthiness of the issuers. Additionally,
although mortgage-related securities are generally supported by some form of
government or private guarantee and/or insurance, there is no assurance that
private guarantors or insurers will meet their obligations.
One type of SMBS has one class receiving all of the interest from the mortgage
assets (the interest-only, or "IO" class), while the other class will receive
all of the principal (the principal-only, or "PO" class). The yield to maturity
on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the underlying mortgage assets, and therefore are
excluded from the funds.
15
U.S. Government Securities
U.S. Government Securities are issued by the U.S. Government, its agencies or
government-sponsored enterprises ("instrumentalities"). These obligations may or
may not be backed by the full faith and credit of the United States. In the case
of securities not backed by the full faith and credit of the United States, the
Funds must look principally to the agency or instrumentality issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Funds may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Federal Home Loan Banks,
which have the right to borrow from the U.S. Treasury to meet their obligations;
(ii) obligations of the Federal National Mortgage Association ("Fannie Mae" or
"FNMA") and the Federal Home Loan Mortgage Corporation ("Freddie Mac" or
"FHLMC"), each of which are supported by the discretionary authority of the U.S.
Treasury to purchase the instrumentality's obligations; and (iii) obligations of
the Federal Farm Credit System and the Student Loan Marketing Association
("Sallie Mae"), each of whose obligations may be satisfied only by the
individual credit of the issuing agency or instrumentality. Securities which are
backed by the full faith and credit of the United States include U.S. Treasury
securities and securities issued by the Government National Mortgage Association
("Ginnie Mae" or "GNMA").
U.S. Government Securities are subject to market and interest rate risk, and may
be subject to varying degrees of credit risk. Agency or instrumentality
obligations may be subject to government agency risk.
When-Issued and Delayed-Delivery Securities
Each Fund, except the Money Market Fund, may purchase securities on a
when-issued or delayed-delivery basis. In when-issued transactions, securities
are bought or sold during the period between the announcement of an offering and
the issuance and payment date of the securities. When securities are purchased
on a delayed-delivery basis, the price of the securities is fixed at the time
the commitment to purchase is made, but settlement may take place at a future
date.
By the time of delivery, securities purchased on a when-issued or
delayed-delivery basis may be valued at less than the purchase price. At the
time when-issued and delayed-delivery securities are purchased, the Fund must
set aside funds in a segregated account to pay for the purchase, and until
acquisition, the Fund will not earn any income on the securities that it
purchased.
Although a Fund will generally purchase securities on a when-issued or
delayed-delivery basis with the intention of acquiring the securities, the Fund
may dispose of the securities prior to delivery, if the Adviser deems it
appropriate. If a Fund chooses to dispose of the right to acquire such
securities prior to acquisition, it could, as with the disposition of any other
such investment, incur a gain or loss due to market fluctuation.
Corporate Debt Securities
The Ultra Short Fund may invest up to 30% of total assets in investment grade
corporate debt securities, including commercial paper, provided however, that
commercial paper must be rated in one of the two highest rating categories by
either Moody's Investors Service, Inc. or Standard & Poor's Rating Service.
Corporate debt securities are subject to the risk of the issuer's inability to
meet principal and interest payments on the obligation and may also be subject
to price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity.
When interest rates rise, the value of corporate debt securities can be expected
to decline. Debt securities with longer maturities tend to be more sensitive to
interest rate movements than those with shorter maturities.
Certificates of Deposit and Bankers' Acceptances
The Funds may invest in certificates of deposit and other time deposits in a
commercial or savings bank or savings association whose accounts are insured by
the Federal Deposit Insurance Corporation ("FDIC Insured Institution").
Investments in certificates of deposit issued by and other time deposits in
foreign branches of FDIC insured banks involve somewhat different investment
risks from those affecting deposits in United States branches of such banks,
including the risk of future political or economic developments or government
action that would adversely affect payments on deposits.
16
The Funds may invest in eligible bankers' acceptances of an FDIC Insured
Institution if such acceptances have remaining maturities of 90 days or less.
Generally, eligible bankers' acceptances are acceptances that are acceptable by
a Federal Reserve Bank as collateral at the discount window.
Variable and Floating Rate Securities
The Funds may purchase U.S. Government securities that have variable or floating
rates of interest ("Variable Rate Securities"). These securities pay interest at
rates that are adjusted periodically according to a specified formula, usually
with reference to some interest rate index or market interest rate. The interest
paid on Variable Rate Securities is a function primarily of the index or market
rate upon which the interest rate adjustments are based. Similar to fixed rate
debt instruments, variable and floating rate instruments are subject to changes
in value based on changes in market interest rates, but because of the interest
reset provision, the potential for capital appreciation or depreciation is
generally less than for fixed rate obligations. The Funds determine the maturity
of Variable Rate Securities in accordance with Securities and Exchange
Commission rules which allow the Fund to consider certain of such instruments as
having maturities shorter than the maturity date on the face of the instrument.
Repurchase Agreements
Each Fund may enter into repurchase agreements, in which the Fund purchases
obligations of the U.S. government or other obligations that are not subject to
any investment limitation on the part of national banks from a bank or
broker-dealer who agrees to repurchase the security at the Fund's cost plus
interest within a specified time. If the party agreeing to repurchase should
default, the Fund will seek to sell the securities which it holds. This could
involve procedural costs or delays in addition to a loss on the securities if
their value should fall below their repurchase price. Repurchase agreements
maturing in more than seven days are considered illiquid securities.
Duration
A bond portfolio's duration approximates its price sensitivity to changes in
interest rates including expected cash flow and mortgage prepayments. Maturity
measures the time until final payment is due; it takes no account of the pattern
of a security's cash flow over time. In computing portfolio duration, a bond
portfolio will estimate the duration of obligations that are subject to
prepayment or redemption by the issuer, taking into account the influence of
interest rates on prepayments and coupon flows. This method of computing
duration is known as the "option-adjusted" duration. The Funds (other than the
Money Market Fund) have no restriction as to the minimum or maximum maturity of
any particular security held by them, but intend to maintain the minimum and
maximum durations noted above. There can be no assurance that the Investment
Adviser's estimate of duration will be accurate or that the duration of a Fund
will always remain within the Fund's target duration.
Temporary Defensive Strategies
For temporary or defensive purposes, each Fund, except the Money Market Fund,
may invest up to 100% of its assets in U.S. debt securities, including taxable
securities and short-term money market securities, when the Adviser deems it
prudent to do so. When a Fund engages in such strategies, it may not achieve its
investment objective.
TRUST AND FUND INFORMATION
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Investment decisions for the Funds are made by Shay Assets Management, Inc.
("Adviser"), a company controlled by Rodger D. Shay. The Adviser, which is
located at 230 West Monroe Street, Suite 2810, Chicago, Illinois 60606, is
registered under the Investment Advisers Act of 1940 and managed, as of December
31, 2004, approximately $4.6 billion in assets. The Adviser is responsible for
placing purchase and sale orders for portfolio instruments.
17
Advisory Fee Expenses
The Funds pay an annual advisory fee based upon a percentage of average daily
net assets. For the year ended October 31, 2004, the advisory fee was paid to
the Adviser as follows:
<Table>
Money Market Fund, Class I Shares........................... 0.00%*
Adjustable Rate Mortgage (ARM) Fund......................... 0.25%*
Ultra Short Fund............................................ 0.25%*
Short U.S. Government Fund.................................. 0.25%
Intermediate Mortgage Fund.................................. 0.25%*
U.S. Government Mortgage Fund............................... 0.25%
</Table>
- ---------------
* The investment adviser voluntarily waived a portion of the advisory fees with
respect to the Money Market Fund, the Adjustable Rate Mortgage (ARM) Fund, the
Ultra Short Fund and the Intermediate Mortgage Fund. Without such waivers, the
fees would have been 0.15%, 0.43%, 0.45% and 0.35%, respectively.
Each voluntary waiver may be terminated at any time by the Adviser.
Portfolio Managers
The portfolio managers of the Adviser responsible for the day-to-day management
of the Funds' investments are Edward E. Sammons, Jr., Richard Blackburn, Jon P.
Denfeld, David Petrosinelli and Kevin T. Blaser.
Mr. Sammons, President and Chief Investment Strategist (Fixed Income) of the
Adviser, leads the team that is responsible for the day-to-day management of the
Funds' investments. Mr. Sammons has been primarily responsible for the Funds'
investments since 1985. Prior to joining the Adviser in 1983, Mr. Sammons spent
over 20 years with the Republic Bank of Dallas and left as a Senior Vice
President and Manager of Fixed Income Securities.
Mr. Blackburn has been Senior Vice President and Senior Portfolio Manager of the
Adviser since 1991. From 1982 to 1991, he was employed by the Adviser primarily
as an account executive and financial consultant. Mr. Blackburn has 34 years of
experience in the securities industry. His previous employers include Harris
Bank, Chicago; Merrill Lynch; and the First National Bank of Chicago. Mr.
Blackburn's primary focus is in the mortgage securities markets, particularly in
the area of floating and/or adjustable rate securities.
Mr. Denfeld, Vice President and Portfolio Manager of the Adviser, joined the
Adviser's fixed income portfolio management team in 1996. From 1993 to 1996, he
was employed by the Funds' distributor, Shay Financial Services, Inc., as an
account executive specializing in financial institutions. Mr. Denfeld's focus is
in the government and mortgage securities markets. He earned a Bachelor of Arts,
with a major in Economics, from Fairfield University and is a Chartered
Financial Analyst (CFA) charterholder.
Mr. Petrosinelli, Vice President and Portfolio Manager of the Adviser, joined
the Adviser's fixed income portfolio management team in 1999. From 1998 to 1999,
Mr. Petrosinelli managed the Operating and Bond Proceed Funds for the Chicago
Public Schools, a division of the City of Chicago. Prior to that, he was
Assistant Vice President and Portfolio Manager for the Celtic Group, an
insurance holding company. Mr. Petrosinelli's primary focus is in the government
and mortgage securities markets. He earned a Bachelor of Science in Finance from
Northeastern University in Boston and a Master of Business Administration, cum
laude, with a concentration in Economics, from Loyola University in Chicago. Mr.
Petrosinelli is also a Chartered Financial Analyst (CFA) charterholder.
Mr. Blaser, Vice President and Portfolio Manager of the Adviser, joined the
Adviser's fixed income management team in 2003. Prior to joining the
fixed-income management team, Mr. Blaser worked for the Portfolio Strategies
Group of Shay Financial Services, Inc. Before joining Shay in 1998, Mr. Blaser
worked for an institutional broker-dealer in the Detroit, Michigan area. He is
currently a Level II Chartered Financial Analyst (CFA) candidate and holds a
Bachelor of Arts in Economics from Michigan State University.
Additional information regarding the portfolio managers' compensation, other
accounts managed by the portfolio managers and the portfolio managers' ownership
of securities in the Funds is available in the Statement of Additional
Information (see "Investment Adviser--Portfolio Managers" in the Statement of
Additional Information).
18
DISTRIBUTOR
- --------------------------------------------------------------------------------
Pursuant to the Distribution Agreement, Shay Financial Services, Inc. (the
"Distributor"), as the principal distributor of the Funds' shares, directly and
through other firms advertises and promotes the Funds. The Trust has adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "12b-1 Plan") which allows each Fund to pay the Distributor the
following fees for the sale and distribution of its shares:
The Money Market Fund Class I Shares and the Short U.S. Government Fund, a
fee at an annual rate equal to 0.15% of the combined average daily net
assets of each Fund (the "Combined Assets") up to and including $0.5
billion; at an annual rate equal to 0.125% of the Combined Assets between
$0.5 billion and $1.0 billion; at an annual rate equal to 0.10% of the
Combined Assets between $1.0 billion and $2.0 billion; and at an annual
rate equal to 0.075% of the Combined Assets over $2.0 billion.
Adjustable Rate Mortgage (ARM) Fund, a fee with respect to the Fund at an
annual rate equal to 0.25% of the average daily net assets of the Fund.
Ultra Short Fund, a fee with respect to the Fund at an annual rate equal to
0.25% of the average daily net assets of the Fund.
Intermediate Mortgage Fund and the U.S. Government Mortgage Fund, a fee
with respect to each Fund at an annual rate equal to 0.15% of the average
daily net assets of each Fund up to and including $0.5 billion; at an
annual rate equal to 0.125% of the average daily net assets between $0.5
billion and $1.0 billion; at an annual rate equal to 0.10% of the average
daily net assets between $1.0 billion and $1.5 billion; and 0.075% of the
average daily net assets over $1.5 billion.
The Distributor is currently waiving all or a portion of its fee for the Class I
Shares of the Money Market Fund, Adjustable Rate Mortgage (ARM) Fund and the
Ultra Short Fund. The voluntary waivers may be terminated at any time by the
Distributor.
Because these fees are paid out of a Fund's assets on an ongoing basis over
time, these fees will increase the cost of your investment. This charge could
cost you more over time than you would pay through some other types of sales
charges; however, the Rule 12b-1 fees are so low that the Trust shares offered
by this prospectus are considered offered at "no-load."
NET ASSET VALUE
For all Funds other than the Money Market Fund, the net asset value per share
fluctuates daily. It is determined by dividing the value of all securities and
all other assets, less liabilities, by the number of shares outstanding. In
general, Fund assets are valued at prices obtained from an independent pricing
service or, for certain securities, the Board of Trustees has approved the daily
use of a matrix pricing system developed by the Adviser that the Board believes
reflects the fair value of such securities. Due to the subjective and variable
nature of fair value pricing, it is possible that the fair value determined for
a particular security may be materially different from the value realized upon
such security's sale. Short-term instruments maturing within 60 days may be
valued at amortized cost.
The Money Market Fund's net asset value per share is determined by dividing the
value of all securities and all other assets, less liabilities, by the number of
shares outstanding. The Fund's investments are valued in accordance with Rule
2a-7 under the Investment Company Act of 1940 based on their amortized cost. The
Trust's Board of Trustees has established procedures reasonably designed to
stabilize the net asset value per share at $1.00, although there is no assurance
that the Fund will be able to do so.
INVESTING IN THE FUNDS
SHARE PURCHASES
- --------------------------------------------------------------------------------
To purchase shares of the Funds, investors may open an account by completing an
application which can be acquired at www.amffunds.com. After a complete
application form has been received and processed, orders to purchase shares of
the Funds may be made by telephoning the Distributor at (800) 527-3713.
19
Purchase orders are accepted on each Business Day and become effective upon
receipt and acceptance by the Trust. (As used in this Prospectus, the term
"Business Day" means any day on which The Bank of New York and the Bond Market
(as determined by the Bond Market Association) are both open for business. The
Bank of New York is open weekdays and is closed on weekends and certain national
holidays.) Payment must be in the form of federal funds. Checks are not
accepted. Wire transfer instructions for federal funds should be as follows:
Bank of New York, New York, NY, ABA#021 000 018, Ref: Account Number 8900403195.
For purchase of Asset Management Fund, (Name of Fund); From: (Name of Investor);
Account Number (Investor's account number with the Trust); $(Amount to be
invested).
FOR ALL FUNDS OTHER THAN THE MONEY MARKET FUND. For an investor's purchase to be
eligible for same day settlement, the purchase order must be received on a
Business Day before 12:00 Noon, New York City time, and payment for the purchase
order must be received by The Bank of New York by 4:00 p.m., New York City time,
of that day. For investors seeking next day settlement, the purchase order must
be received on a Business Day before 4:00 p.m., New York City time, and payment
must be received by The Bank of New York by 4:00 p.m., New York City time, on
the next Business Day after the purchase order was received. An investor must
indicate to the Trust at the time the order is placed whether same day or next
day settlement is sought. Payment must be received by The Bank of New York by
4:00 p.m., New York City time, on the Business Day designated for settlement or
the order will be cancelled.
FOR THE MONEY MARKET FUND. A purchase order must be received on a Business Day
before 3:00 p.m., New York City time, and payment for the purchase order must be
received by The Bank of New York by 4:00 p.m., New York City time, of that day.
A purchase order is considered binding upon the investor. If payment is not
timely received, the Trust may hold the investor responsible for any resulting
losses or expenses the Trust incurs. In addition, the Trust, the Adviser and/or
the Distributor may prohibit or restrict the investor from making future
purchases of the Trust's shares. The Distributor reserves the right to reimburse
the Trust in its sole and absolute discretion on behalf of an investor for
losses or expenses incurred by the Trust as a result of the investor's failure
to make timely payment.
Any federal funds received in respect of a cancelled order will be returned upon
instructions from the sender without any liability to the Trust, the Adviser,
the Distributor or The Bank of New York. If it is not possible to return such
federal funds the same day, the sender will not have the use of such funds until
the next day on which it is possible to effect such return. The Trust, the
Adviser and/or the Distributor reserve the right to reject any purchase order.
ANTI-MONEY LAUNDERING PROGRAM
- --------------------------------------------------------------------------------
The Trust is required to comply with various federal anti-money laundering laws
and regulations. Consequently, the Trust may be required to hold the account of
an investor if the investor appears to be involved in suspicious activity or if
certain account information matches information on government lists of known
terrorists or other suspicious persons, or the Trust may be required to transfer
the account or proceeds of the account to a government agency.
Federal law requires the Trust to obtain, verify and record identifying
information, which may include the name, street address, date of birth, taxpayer
identification number or other identifying information for investors who open an
account with the Trust. Financial institutions as defined at 31 U.S.C.
5312(a)(2) regulated by a federal functional regulator or a bank regulated by a
state bank regulator are not subject to the customer identification
requirements. The Trust may also ask to see other identifying documents.
Applications without this information may not be accepted and orders will not be
processed. Pending verification of the investor's identity, the Trust will
require a signature guarantee in order to process redemption requests. The Trust
reserves the right to place limits on transactions in any account until the
identity of the investor is verified; to refuse an investment in the Trust or
involuntarily redeem an investor's shares and close an account in the event that
an investor's identity is not verified; or suspend the payment of withdrawal
proceeds if it is deemed necessary to comply with anti-money laundering
regulations. The Trust and its agents will not be responsible for any loss
resulting from the investor's delay in providing all required identifying
information or from closing an account and redeeming an investor's shares when
an investor's identity cannot be verified.
20
MINIMUM INVESTMENT REQUIRED
- --------------------------------------------------------------------------------
The minimum initial investment in each Fund is $10,000; provided, however, that
the Distributor and/or the Trust reserve the right to accept a lesser initial
investment in their sole and absolute discretion. There is no minimum investment
balance required. Subsequent purchases may be made in any amount.
WHAT SHARES COST
- --------------------------------------------------------------------------------
Shares of the Funds are sold at their net asset value next determined after the
purchase order is received. The Money Market Fund seeks to maintain a net asset
value of $1.00 per share. (See "Net Asset Value"). There is no sales charge
imposed by the Funds. For all Funds other than the Money Market Fund, the net
asset value is determined each Business Day at 4:00 p.m., New York City time.
For the Money Market Fund, net asset value is determined on each Business Day at
3:00 p.m., New York City time, for purchase orders. Net asset value for purposes
of pricing redemption orders is determined twice on any day redemptions are
permitted and a proper redemption request is received (see "Redeeming Shares").
Shares may be purchased through accounts established with investment
professionals, such as banks or brokers. Investment professionals may charge
additional fees directly to the investor for these services.
DIVIDENDS
- --------------------------------------------------------------------------------
Dividends are declared daily and paid monthly. Such dividends are declared
immediately prior to 4:00 p.m. (3:00 p.m. for the Money Market Fund), New York
City time, and are automatically reinvested in additional shares of the
respective Portfolios unless the shareholder requests cash payments by
contacting the Distributor.
For all Funds other than the Money Market Fund, an investor will receive the
dividend declared on both the day its purchase order is settled and the day its
redemption order is effected, including any next succeeding non-Business Day or
Days, since proceeds are normally wired the next Business Day. For the Money
Market Fund, an investor will receive the dividend declared on the day its
purchase order is settled. A Money Market Fund shareholder seeking same day
settlement of a redemption will not receive the dividend declared on the day its
redemption order is effected.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
- --------------------------------------------------------------------------------
Frequent purchases and redemptions of a Fund's shares may present risks to other
shareholders of the Fund. These risks include disruption of portfolio investment
strategies, with potential resulting harm to performance, and increased trading
costs or fund expenses. All Funds, except the Money Market Fund, discourage and
have established policies and procedures designed to detect and deter frequent
trading that may be harmful to shareholders for other than legitimate liquidity
needs. Under the Funds' policies and procedures approved by the Board of
Trustees, (i) trading activity in shareholder accounts, except accounts held in
the name of a financial intermediary, that meet thresholds set by the Adviser
based on the frequency and size of transactions in the account during a
specified time period may be reviewed to assess whether the frequent trading in
the account may be harmful to other shareholders and is pursued for the purpose
of attempting to profit from anticipated short-term market moves up or down
("market timing"); (ii) the Adviser on behalf of each Fund reserves the right to
reject or restrict any purchase order or exchange, including any frequent
trading believed to constitute market timing; and (iii) the Funds, Adviser and
Distributor are prohibited from entering into any agreement that would permit or
facilitate market timing in the Funds. The Funds' policies and procedures direct
the Adviser to establish specific procedures to detect and deter market timing
in order to implement the Funds' frequent trading policies and procedures.
Although these efforts are designed to deter frequent purchases and redemptions
of Fund shares pursued for purposes of market timing, there is no assurance that
these policies and procedures will be effective. These policies and procedures
may be modified or terminated at any time without notice to shareholders.
Shares of the Funds may be held in the name of a financial intermediary. These
accounts may be comprised of multiple investors whose purchases and redemptions
are aggregated and netted before being submitted to the Funds. The Funds may not
have access to information regarding trading activity by individual investors in
such accounts. Accordingly, the Funds' policies and procedures with respect to
frequent purchases and redemptions do not apply to accounts held in the name of
a financial intermediary.
21
Unlike the other Funds, the Money Market Fund is designed to permit frequent
trading in the Fund. As a result, the Trust's Board of Trustees has determined
that it would be appropriate for the Fund not to adopt policies and procedures
with respect to frequent purchases and redemptions of the Fund shares.
CAPITAL GAINS
- --------------------------------------------------------------------------------
Net capital gains, if any, of a Fund are generally declared and paid once each
year and reinvested in shares or, at the shareholder's option, paid in cash.
REDEEMING SHARES
The Funds redeem shares at their respective net asset values next determined
after the Distributor receives the redemption request. Redemptions may be made
on Business Days. Redemption requests must be received in proper form and can be
made by telephone or in writing.
TELEPHONE REDEMPTION
- --------------------------------------------------------------------------------
- - For all Funds other than the Money Market Fund:
Shareholders may redeem their shares by telephoning the Distributor on a
Business Day. Call (800) 527-3713. Shareholders may experience difficulties
contacting the Distributor during drastic economic events, political
uncertainty or national tragedies. At such times, shareholders may also
contact the Distributor at (312) 214-7455. In addition, shareholders can
submit written requests for redemption as described under "Written Requests."
Net asset value is determined each Business Day at 4:00 p.m., New York City
time. The time the redemption request is received determines when proceeds are
sent and the accrual of dividends. Redemption requests received prior to 12:00
Noon, New York City time on a Business Day or other day redemptions are
permitted, are effected on the same day, immediately after 4:00 p.m., New York
City time. This means that proceeds will normally be wired in federal funds to
the shareholder's bank or other account shown on the Trust's records the next
Business Day, but in no case later than seven days.
- - For the Money Market Fund:
Shareholders may redeem their shares by telephoning the Distributor on a
Business Day. Call (800) 527-3713. For redemptions, net asset value is
determined twice each Business Day, at 12:00 Noon and at 3:00 p.m., New York
City time. If the request is received before 3:00 p.m., New York City time, on
a Business Day, the proceeds will normally be wired the same day in federal
funds to the shareholder's bank or other account shown on the Fund's records,
but in no case later than seven days ("same day settlement"). If the request
is received after 3:00 p.m., New York City time, on a Business Day, the
request will be priced and the proceeds will normally be wired the next
Business Day.
A shareholder seeking same day settlement will not receive any dividend
declared on the day its redemption request is effected.
WRITTEN REQUESTS
- --------------------------------------------------------------------------------
Shares may also be redeemed by sending a written request to the Distributor, 230
W. Monroe Street, Suite 2810, Chicago, Illinois 60606-4902; Attention: Asset
Management Fund.
Signatures
Signatures on written redemption requests must be guaranteed by one of the
following:
- - a Federal Home Loan Bank
- - a savings association or a savings bank
- - a trust company or a commercial bank
- - a member firm of a domestic securities exchange or a registered securities
association
- - a credit union or other eligible guarantor institution
22
In certain instances, the transfer and dividend agent may request additional
documentation believed necessary to insure proper authorization. Shareholders
with questions concerning documentation should call the Distributor at (800)
527-3713.
Receiving Payment
Proceeds of written redemption requests are sent at the same time and in the
same manner as for telephone redemptions, based on the time of the receipt in
proper form.
EXCHANGES
Shareholders may exchange shares of a Fund with shares in another Fund of the
Trust by telephoning the Distributor on a Business Day. Call (800) 527-3713.
Exchanges may also be made by written request as previously described under
"Written Requests." Exchanges will be effected at the relative net asset values
next determined after receipt of an exchange request in proper form.
Shareholders will receive dividends in the Fund through the date the exchange is
effected and will begin receiving dividends in the other Fund the next Business
Day. An exchange between Funds will generally result in a capital gain or loss,
since for federal income tax purposes an exchange is treated as a sale of the
shares from which the exchange is made and a purchase of the shares into which
the exchange is made.
The Trust reserves the right to amend or terminate this privilege with notice to
shareholders.
SHAREHOLDER INFORMATION
VOTING RIGHTS
- --------------------------------------------------------------------------------
The Trust has six funds: >the Money Market Fund, the Adjustable Rate Mortgage
(ARM) Fund, the Ultra Short Fund, the Short U.S. Government Fund, the
Intermediate Mortgage Fund and the U.S. Government Mortgage Fund. Shares of each
Fund represent interests only in the corresponding Fund and have equal voting
rights within each Fund. The Money Market Fund is the only fund of the Trust
that has two classes of shares: the Class I Shares and Class D Shares. Shares of
each class have equal voting rights within each class and within the Money
Market Fund. The Class D Shares of the Money Market Fund are offered in a
separate prospectus. The Trust's Declaration of Trust provides that on any
matter submitted to a vote of shareholders, all shares, irrespective of fund or
class, shall be voted in the aggregate and not by fund or class, except that (i)
as to any matter with respect to which a separate vote of any fund or class is
permitted or required by the Investment Company Act of 1940 or the document
establishing and designating that fund or class, such requirements as to a
separate vote by that fund or class shall apply in lieu of the aggregate voting
as described above, and (ii) as to any matter which does not affect the interest
of a particular fund or class, only shareholders of the affected fund or class
shall be entitled to vote thereon. The Bylaws of the Trust require that a
special meeting of shareholders be held upon the written request of shareholders
holding not less than 10% of the issued and outstanding shares of the Trust (or
the fund or classes thereof).
DISCLOSURE OF INFORMATION REGARDING PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
A description of the Trust's policy with respect to disclosure of information
regarding the portfolio holdings of the Funds is available in the Statement of
Additional Information (see "Disclosure of Information Regarding Portfolio
Holdings" in the Statement of Additional Information).
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
Each Fund intends to remain qualified as a regulated investment company under
the Internal Revenue Code for its future taxable years so long as such
qualification is in the best interests of shareholders. If a Fund so qualifies,
it will not pay federal income tax on the income and capital gain that it
distributes to its shareholders.
The Trust intends to distribute all of the net investment income and any net
capital gains, if any, of the Funds to shareholders. Unless otherwise exempt,
shareholders are required to pay federal income tax on any dividends and other
distributions received. This applies whether dividends or distributions are
received in cash or as additional shares. Dividends declared in October,
November or December to shareholders of record as of a
23
date in such month and paid during the following January are treated as if
received on December 31 of the calendar year declared. It is not anticipated
that any Fund's distributions will be treated as "qualified dividend income"
eligible for reduced rates of federal income taxation when received by
non-corporate shareholders.
Redemptions and exchanges of Fund shares are treated as sales and are subject to
federal income taxation.
Dividends and distributions may be subject to state and local taxes. Depending
on your state's tax laws, however, dividends attributable to interest earned on
direct obligations of the U.S. Government may be exempt from such taxes.
Information on the federal income tax status of dividends and distributions is
provided annually.
A Fund may be required to withhold, for U.S. federal income tax purposes, a
portion of all taxable distributions payable to shareholders who fail to provide
such Fund with their correct taxpayer identification number or who fail to make
required certifications or if the Fund or the shareholder has been notified by
the Internal Revenue Service that the shareholder is subject to 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
provided the appropriate information is furnished to the Internal Revenue
Service.
Prospective shareholders of a Fund should consult with their own tax advisers
concerning the effect of owning shares of such Fund in light of their particular
tax situation.
24
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds'
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share outstanding throughout each year. The
total returns in the tables represent the rate that an investor would have
earned on an investment in a particular fund (assuming reinvestment of all
dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each Fund's financial
statements, is included in the Annual Report, which is available upon request.
MONEY MARKET FUND, CLASS I SHARES
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.0104 0.0096 0.0152 0.0441 0.0578
Net realized losses from investments................ -- -- -- -- --(a)
-------- -------- -------- -------- --------
Total from investment operations............... 0.0104 0.0096 0.0152 0.0441 0.0578
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income:...................... (0.0104) (0.0096) (0.0152) (0.0441) (0.0578)
Change in net asset value............................. -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.......................................... 1.04% 0.97% 1.54% 4.50% 5.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).................. $ 31,883 $ 40,737 $ 30,571 $ 45,491 $ 48,202
Ratio of expenses to average net assets............. 0.11% 0.18% 0.26% 0.30% 0.30%
Ratio of net investment income to average net
assets........................................... 1.04% 0.96% 1.53% 4.31% 5.74%
Ratio of expenses to average net assets*............ 0.41% 0.39% 0.41% 0.45% 0.45%
- -----------------------------------------------------------------------------------------------------------------
</Table>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Net realized losses per share were less than $0.00005.
25
ADJUSTABLE RATE MORTGAGE (ARM) FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2004 2003 2002 2001(A) 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year............. $ 9.88 $ 9.95 $ 9.97 $ 9.86 $ 9.84
---------- ---------- ---------- ---------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.1824 0.1778 0.2947 0.5319 0.6048
Net realized and unrealized gain (loss) from
investments............................... (0.0070) (0.0230) 0.0124 0.1386 0.0233
---------- ---------- ---------- ---------- --------
Total from investment operations........ 0.1754 0.1548 0.3071 0.6705 0.6281
---------- ---------- ---------- ---------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income................ (0.2254) (0.2248) (0.3271) (0.5605) (0.6129)
---------- ---------- ---------- ---------- --------
Change in net asset value...................... (0.05) (0.07) (0.02) 0.11 0.02
---------- ---------- ---------- ---------- --------
Net asset value, end of year................... $ 9.83 $ 9.88 $ 9.95 $ 9.97 $ 9.86
========== ========== ========== ========== ========
Total return................................... 1.79% 1.57% 3.13% 6.98% 6.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)........... $3,317,024 $4,596,939 $3,389,975 $2,064,844 $681,652
Ratio of expenses to average net assets...... 0.44% 0.44% 0.45% 0.49% 0.48%
Ratio of net investment income to average net
assets.................................... 1.92% 1.72% 2.91% 5.37% 6.22%
Ratio of expenses to average net assets*..... 0.72% 0.71% 0.75% 0.79% 0.78%
Portfolio turnover rate...................... 50% 117% 107% 72% 67%
- ------------------------------------------------------------------------------------------------------------------
</Table>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Net investment income is based on average shares outstanding through the
period.
ULTRA SHORT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
NOVEMBER 14,
2001(A) TO
2004 2003 OCTOBER 31, 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.......................... $ 9.92 $ 9.95 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.1985 0.1601 0.2204
Net realized and unrealized gains on investments.......... (0.0217) 0.0242 0.0058
-------- -------- --------
Total from investment operations..................... 0.1768 0.1843 0.2262
-------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income............................. (0.2268) (0.2143) (0.2762)
-------- -------- --------
Change in net asset value................................... (0.05) (0.03) (0.05)
-------- -------- --------
Net asset value, end of period.............................. $ 9.87 $ 9.92 $ 9.95
======== ======== ========
Total return................................................ 1.80% 1.87% 2.29%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)...................... $291,349 $251,668 $287,116
Ratio of expenses to average net assets................... 0.47% 0.47% 0.50%(c)
Ratio of net investment income to average net assets...... 2.00% 1.66% 2.11%(c)
Ratio of expenses to average net assets*.................. 0.77% 0.77% 0.80%(c)
Portfolio turnover rate................................... 118% 126% 127%
- --------------------------------------------------------------------------------------------------------
</Table>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
26
SHORT U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.................... $ 10.68 $ 10.78 $ 10.75 $ 10.34 $ 10.36
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.2640 0.2738 0.3512 0.5652 0.5973
Net realized and unrealized gain (loss) from
investments...................................... (0.0415) (0.0686) 0.0674 0.4086 (0.0240)
-------- -------- -------- -------- --------
Total from investment operations............... 0.2225 0.2052 0.4186 0.9738 0.5733
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income....................... (0.2925) (0.3052) (0.3886) (0.5638) (0.5976)
-------- -------- -------- -------- --------
Change in net asset value............................. (0.07) (0.10) 0.03 0.41 (0.02)
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 10.61 $ 10.68 $ 10.78 $ 10.75 $ 10.34
======== ======== ======== ======== ========
Total return.......................................... 2.11% 1.92% 3.98% 9.66% 5.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).................. $153,252 $232,605 $162,170 $191,632 $ 96,098
Ratio of expenses to average net assets............. 0.48% 0.47% 0.49% 0.51% 0.51%
Ratio of net investment income to average net
assets........................................... 2.50% 2.47% 3.35% 5.25% 5.79%
Portfolio turnover rate............................. 152% 72% 75% 54% 138%
- -----------------------------------------------------------------------------------------------------------------
</Table>
INTERMEDIATE MORTGAGE FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.................... $ 9.62 $ 9.79 $ 9.83 $ 9.33 $ 9.33
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.2892 0.2525 0.4155 0.5675 0.5754
Net realized and unrealized gain (loss) from
investments...................................... (0.0233) (0.1156) (0.0213) 0.4861 0.0051
-------- -------- -------- -------- --------
Total from investment operations............... 0.2659 0.1369 0.3942 1.0536 0.5805
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income....................... (0.3159) (0.3069) (0.4342) (0.5536) (0.5795)
Change in net asset value............................. (0.05) (0.17) (0.04) 0.50 0.00
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 9.57 $ 9.62 $ 9.79 $ 9.83 $ 9.33
======== ======== ======== ======== ========
Total return.......................................... 2.81% 1.41% 4.13% 11.59% 6.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).................. $298,308 $347,858 $240,645 $204,891 $ 90,768
Ratio of expenses to average net assets............. 0.47% 0.47% 0.47% 0.50% 0.51%
Ratio of net investment income to average net
assets........................................... 3.02% 2.52% 4.28% 5.74% 6.25%
Ratio of expenses to average net assets*............ 0.57% 0.57% 0.57% 0.60% 0.61%
Portfolio turnover rate............................. 148% 98% 54% 47% 110%
- -----------------------------------------------------------------------------------------------------------------
</Table>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
27
U.S. GOVERNMENT MORTGAGE FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.................... $ 10.56 $ 10.77 $ 10.83 $ 10.27 $ 10.26
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... 0.3875 0.3689 0.5116 0.6381 0.6646
Net realized and unrealized gain (loss) from
investments...................................... 0.0795 (0.1511) (0.0377) 0.5590 0.0109
-------- -------- -------- -------- --------
Total from investment operations............... 0.4670 0.2178 0.4739 1.1971 0.6755
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends paid to stockholders:
From net investment income:...................... (0.4370) (0.4278) (0.5339) (0.6371) (0.6682)
-------- -------- -------- -------- --------
Change in net asset value............................. 0.03 (0.21) (0.06) 0.56 0.01
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 10.59 $ 10.56 $ 10.77 $ 10.83 $ 10.27
======== ======== ======== ======== ========
Total return.......................................... 4.52% 2.04% 4.54% 11.99% 6.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in 000's).................. $166,868 $204,566 $ 94,154 $105,713 $ 71,449
Ratio of expenses to average net assets............. 0.47% 0.47% 0.47% 0.50% 0.52%
Ratio of net investment income to average net
assets........................................... 3.70% 3.39% 4.80% 6.09% 6.53%
Portfolio turnover rate............................. 171% 102% 82% 86% 127%
- -----------------------------------------------------------------------------------------------------------------
</Table>
28
Notes
Notes
SHAREHOLDER REFERENCE INFORMATION
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shay Financial Services, Inc.
230 West Monroe Street
Suite 2810
Chicago, Illinois 60606
INVESTMENT ADVISER
Shay Assets Management, Inc.
230 West Monroe Street
Suite 2810
Chicago, Illinois 60606
ADMINISTRATOR AND TRANSFER
AND DIVIDEND AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz, P.C.
222 N. LaSalle Street
Chicago, Illinois 60601
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, Ohio 43215
TRUSTEES AND OFFICERS
Rodger D. Shay, Sr.
Trustee and Chairman
Gerald J. Levy
Trustee and Vice Chairman
Richard M. Amis
Trustee
Arthur G. DeRusso
Trustee
David F. Holland
Trustee
William A. McKenna, Jr.
Trustee
Rodger D. Shay, Jr.
Trustee
Edward E. Sammons, Jr.
President
Robert T. Podraza
Vice President and Assistant Treasurer
Trent M. Statczar
Treasurer
Daniel K. Ellenwood
Secretary
Frederick J. Schmidt
Chief Compliance Officer
Additional information about the Funds may be found in the Statement of
Additional Information. The Statement of Additional Information contains more
detailed information on the Funds' investments and operations. The semiannual
and annual shareholder reports contain a discussion of the market conditions and
the investment strategies that significantly affected the Funds' performance
during the last fiscal year, as well as a listing of portfolio holdings and
financial statements. These documents may be obtained without charge from the
following sources:
By Phone:
1-800-527-3713
By Mail:
Shay Financial Services, Inc.
Attn: Asset Management Fund
230 West Monroe Street
Suite 2810
Chicago, IL 60606
Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-0102
(a duplication fee is charged)
In Person:
Public Reference Room
Securities and Exchange Commission,
Washington, D.C.
(Call 1-202-942-8090 for more information)
By Internet:
http://www.amffunds.com
http://www.sec.gov (EDGAR Database)
By E-mail:
publicinfo@sec.gov
(a duplication fee is charged)
To request other information about the Funds or to make shareholder inquiries,
call 1-800-527-3713.
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number: Asset Management Fund 811-3541
[AMF LOGO] Asset Management Fund
230 W. Monroe Street, Suite 2810, Chicago, IL 60606 - 1-800-527-3713
- - www.amffunds.com
ASSET MANAGEMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2005
AMENDED AND RESTATED AS OF AUGUST 17, 2005
MONEY MARKET FUND
ULTRA SHORT MORTGAGE FUND
ULTRA SHORT FUND
SHORT U.S. GOVERNMENT FUND
INTERMEDIATE MORTGAGE FUND
U.S. GOVERNMENT MORTGAGE FUND
230 WEST MONROE STREET, SUITE 2810, CHICAGO, ILLINOIS 60606
The Money Market Fund, the Ultra Short Mortgage Fund, the Ultra Short
Fund, the Short U.S. Government Fund ("Short U.S. Fund"), the Intermediate
Mortgage Fund and the U.S. Government Mortgage Fund (each, a "Fund" and
collectively, the "Funds") are each a portfolio of Asset Management Fund (the
"Trust"), a professionally managed, diversified, open-end investment company.
Each Fund is represented by a series of shares separate from those of the
Trust's other series.
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Trust's Prospectuses, dated March 1, 2005, as
supplemented June 8, 2005 and August 17, 2005 (the "Prospectuses"), a copy of
which may be obtained from the Trust at 230 W. Monroe Street, Suite 2810,
Chicago, Illinois 60606.
The financial statements, notes and report of the Trust's independent
registered public accounting firm pertaining to these funds which appear in the
Trust's 2004 Annual Report to Shareholders are incorporated herein by reference.
The Trust's 2004 Annual Report is available, without charge, upon request by
calling 1-800-527-3713.
TABLE OF CONTENTS
PAGE
Trust History..................................................................1
The Funds' Objectives and Investment Policies..................................1
Investment Restrictions.......................................................12
Purchase and Redemption of Shares.............................................18
Management of the Trust.......................................................18
Investment Adviser............................................................29
Distributor...................................................................33
Fund Services.................................................................36
Custodian.....................................................................37
Determination of Net Asset Value..............................................37
Federal Income Taxes..........................................................38
Fund Transactions.............................................................41
Disclosure of Information Regarding Portfolio Holdings........................41
Organization and Description of Shares........................................42
Counsel and Independent Registered Public Accounting Firm.....................42
General Information...........................................................43
Financial Statements..........................................................43
Appendix A...................................................................A-1
i
Capitalized terms not defined in this Statement of Additional
Information and defined in the Prospectuses shall have the meanings defined in
the Prospectuses. The term Mortgage Securities Funds refers to the Ultra Short
Mortgage Fund (which prior to August 10, 2005 was called the Adjustable Rate
Mortgage (ARM) Fund), the Intermediate Mortgage Fund and the U.S. Government
Mortgage Fund.
TRUST HISTORY
Asset Management Fund (the "Trust") is a Delaware statutory trust
operating under an Amended and Restated Declaration of Trust dated August 10,
2005. The Trust was formerly a Maryland corporation, which commenced operations
on November 9, 1982. In September 1994, the Trust changed its name from Asset
Management Fund for Financial Institutions, Inc. to Asset Management Fund, Inc.
and on September 30, 1999, as part of the reorganization into a Delaware
statutory trust, changed its name to Asset Management Fund. The Trust is an
open-end, management investment company and each of the Funds are diversified.
THE FUNDS' OBJECTIVES AND INVESTMENT POLICIES
Notwithstanding anything to the contrary in this Statement of
Additional Information or the Prospectuses, each Fund, except the Ultra Short
Fund, limits its investments and investment techniques so as to qualify for
investment without specific statutory limitation by national banks, federal
savings associations and federal credit unions under current applicable federal
regulations. Under the policies adopted by the Board of Trustees, permissible
investments for the Funds include those described in the Prospectuses, together
with the following, as long as principal and interest on such investments are
not in default:
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements,
under which it may acquire obligations of the U.S. government or other
obligations that are not subject to any investment limitation on the part of
national banks for a relatively short period (usually not more than 30 days)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. If the seller defaults on its obligation to repurchase
from the Fund the underlying instrument, which in effect constitutes collateral
for the seller's obligation, at the price and time fixed in the repurchase
agreement, the Fund might incur a loss if the value of the collateral declines
and might incur disposition costs in connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to the seller,
realization upon the collateral by the Fund may be delayed or limited. Each Fund
will always receive as collateral U.S. government securities or other securities
that are not subject to any investment limitation on the part of national banks
whose market value, including accrued interest, will be at least equal to 100%
of the dollar amount invested by the Fund in each agreement, and each Fund will
make payment for such instruments only upon their physical delivery to, or
evidence of their book entry transfer to the account of, the Trust's custodian.
No Fund will enter into any repurchase agreements maturing in more than 60 days.
FDIC INSURED INSTITUTIONS. Although each Fund's investment in
certificates of deposit and other time deposits in an FDIC insured institution
is insured to the extent of $100,000 by the FDIC, the Fund may invest more than
$100,000 with a single institution, and any such excess and any interest on the
investment would not be so insured. Deposits in foreign branches of FDIC insured
banks are not insured by the FDIC. Securities issued by FDIC insured
institutions are not insured by the FDIC.
The Money Market Fund will invest in deposits of an FDIC insured
institution only if such institution or a security issued by such institution
(i) has a short-term debt obligation rating in the highest category by at least
two nationally recognized statistical rating organizations ("NRSROs"), or (ii)
if rated by two NRSROs in the second-highest category for short-term debt
obligations, may be purchased only in the amounts prescribed for "Second Tier
Securities" by Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"), or (iii) if rated only by one NRSRO has a
short-term debt obligation rating in the highest category by that NRSRO, or (iv)
if no such ratings are available, is of comparable quality in the opinion of the
Investment Adviser.
The Funds (except the Money Market Fund) will invest in deposits of an
FDIC insured institution only if such institution or a security issued by such
institution (i) has a short-term debt obligation rating in the highest category
by one NRSRO, or (ii) if no such ratings are available, is of comparable quality
in the opinion of the Investment Adviser under the general supervision of the
Board of Trustees.
RELATIVE STABILITY OF PRINCIPAL. The Money Market Fund seeks to
maintain its net asset value per share at $1.00 (although there is no assurance
that the Money Market Fund will be able to do so on a continuous basis). The net
asset value per share of the other Funds fluctuates. It is expected that over
the long term the volatility of the other Funds will be low in relation to
longer-term bond funds; however, there may be a loss of principal.
ILLIQUID SECURITIES. Each Fund may invest up to 15% (except that the
Money Market Fund is limited to 10%) of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities are considered to include, among other things, written
over-the-counter options, securities or other liquid assets being used as cover
for such options, repurchase agreements with maturities in excess of seven days,
fixed time deposits which are not subject to prepayment (other than overnight
deposits), and other securities whose disposition is restricted under federal
securities laws (other than securities issued pursuant to Rule 144A under the
Securities Act of 1933 and for the Ultra Short Fund certain commercial paper
that the Investment Adviser has determined to be liquid under procedures
approved by the Board of Trustees).
Illiquid securities may include privately placed securities, which are
sold directly to a small number of investors, usually institutions. Unlike
public offerings, such securities are not registered under the federal
securities laws. Although certain of these securities may be readily sold,
others may be illiquid, and their sale may involve substantial delays and
additional costs.
PORTFOLIO TURNOVER. The length of time a Fund has held a particular
security is not generally a consideration in investment decisions. A change in
the securities held by a Fund is known as "portfolio turnover." A Fund may
engage in frequent and active trading of portfolio securities to achieve its
investment objective, particularly during periods of volatile market movements.
High portfolio turnover (e.g., over 100%) may involve correspondingly greater
expenses to a Fund, including dealer mark-ups and other transaction costs on the
sale of securities and reinvestments in other securities. Such sales may also
result in realization of taxable capital gains, including short-term capital
gains (which are generally taxed at ordinary income tax rates). The trading
costs and tax effects associated with portfolio turnover may adversely affect a
Fund's performance.
TEMPORARY DEFENSIVE STRATEGIES. For temporary or defensive purposes,
each Fund, except the Money Market Fund, may invest up to 100% of its assets in
debt securities issued by the U.S. Government or its agencies, including taxable
securities and short-term money market securities, when the Investment Adviser
deems it prudent to do so. When a Fund engages in such strategies, it may not
achieve its investment objective.
U.S. GOVERNMENT OR AGENCY SECURITIES. Each Fund may invest in
obligations issued or guaranteed by the United States or certain agencies or
instrumentalities thereof or a U.S. Government-sponsored corporation. These
include obligations issued by the United States or by a Federal Home Loan Bank,
Freddie Mac, Fannie Mae, the Government National Mortgage Association, the
Student Loan Marketing Association and the Federal Farm Credit Banks. Since many
of these U.S. Government
2
securities are not backed by the "full faith and credit" of the United States,
the Fund must look principally to the agency or instrumentality or corporation
issuing or guaranteeing such obligation for ultimate repayment and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality or corporation does not meet its commitment.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each Fund, except the
Money Market Fund, may purchase securities on a when-issued or delayed-delivery
basis. In when-issued transactions, securities are bought or sold during the
period between the announcement of an offering and the issuance and payment date
of the securities. When securities are purchased on a delayed-delivery basis,
the price of the securities is fixed at the time the commitment to purchase is
made, but settlement may take place at a future date. By the time of delivery,
such securities may be valued at less than the purchase price.
Securities purchased for payment and delivery at a future date are
subject to market fluctuation, and no interest accrues to the Funds until
delivery and payment take place. At the time each Fund makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value each day of such securities in determining its net asset value. When
such securities are purchased, the Fund must set aside funds in a segregated
account to pay for the purchase, and until acquisition, the Fund will not earn
any interest in the security it purchased. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities that are segregated and/or from available cash. If a Fund sells such
a security before the security has been delivered, the Investment Adviser will
instruct the Trust's custodian to segregate assets to cover the security to
satisfy the Fund's delivery obligations.
To be announced ("TBA") mortgage securities are mortgage pools where
the issuer has defined and agreed to, in advance, the terms for investors, but
has not yet specified the mortgages that will act as collateral.
VARIABLE AND FLOATING RATE SECURITIES. The Funds may purchase U.S.
Government securities that have variable or floating rates of interest
("Variable Rate Securities"). These securities pay interest at rates that are
adjusted periodically according to a specified formula, usually with reference
to some interest rate index or market interest rate. The adjustment intervals
may be regular, and range from daily up to annually, or may be event based, such
as based on a change in the prime rate. The interest paid on Variable Rate
Securities is a function primarily of the index or market rate upon which the
interest rate adjustments are based. Similar to fixed rate debt instruments,
variable and floating rate instruments are subject to changes in value based on
changes in market interest rates, but because of the interest reset provision,
the potential for capital appreciation or depreciation is generally less than
for fixed rate obligations. Each Fund determines the maturity of Variable Rate
Securities in accordance with Securities and Exchange Commission rules that
allow the Fund to consider certain of such instruments as having maturities
shorter than the maturity date on the face of the instrument.
The Ultra Short Fund may invest in floating rate debt instruments
("floaters") and engage in credit spread trades. The floater's coupon is a
variable rate which is tied to another interest rate, such as a money-market
index or Treasury bill rate. The interest rate on a floater resets periodically,
typically every six months. While, because of the interest rate reset feature,
floaters provide the Fund with a certain degree of protection against rises in
interest rates, the Fund will participate in any declines in interest rates as
well. A credit spread trade is an investment position relating to a difference
in the prices or interest rates of two securities, where the value of the
investment position is determined by movements in the difference between the
prices or interest rates, as the case may be, of the respective securities.
INFLATION-INDEXED BONDS. Inflation-indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. Two structures are common. The U.S.
3
Treasury and some other issuers use a structure that accrues inflation into the
principal value of the bond. Most other issuers pay out the Consumer Price Index
("CPI") accruals as part of a semiannual coupon.
Inflation-indexed securities issued by the U.S. Treasury have
maturities of five, ten or thirty years, although it is possible that securities
with other maturities will be issued in the future. The U.S. Treasury securities
pay interest on a semi-annual basis, equal to a fixed percentage of the
inflation-adjusted principal amount. For example, if a Fund purchased an
inflation-indexed bond with a par value of $1,000 and a 3% real rate of return
coupon (payable 1.5% semi-annually), and inflation over the first six months was
1%, the mid-year par value of the bond would be $1,010 and the first semi-annual
interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the
second half of the year resulted in the whole year's inflation equaling 3%, the
end-of-year par value of the bond would be $1,030 and the second semi-annual
interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the
principal value of inflation-indexed bonds will be adjusted downward, and
consequently the interest payable on these securities (calculated with respect
to a smaller principal amount) will be reduced. Repayment of the original bond
principal upon maturity (as adjusted for inflation) is guaranteed in the case of
U.S. Treasury inflation-indexed bonds, even during a period of deflation.
However, the current market value of the bonds is not guaranteed, and will
fluctuate. If a guarantee of principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less than the original principal.
The value of inflation-indexed bonds is expected to change in response
to changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation
and energy. There can be no assurance that the CPI-U or any inflation index will
accurately measure the real rate of inflation in the prices of goods and
services.
Any increase in the principal amount of an inflation-indexed bond will
be considered taxable ordinary income, even though investors do not receive
their principal until maturity.
CORPORATE DEBT SECURITIES. The Ultra Short Fund's investments in U.S.
dollar-denominated corporate debt securities are limited to corporate debt
securities (corporate bonds, debentures, notes and other similar corporate debt
instruments, including convertible securities) which meet the minimum ratings
criteria set forth for the Fund. The rate of interest on a corporate debt
security may be fixed, floating or variable, and may vary inversely with respect
to a reference rate. Debt securities may be acquired with warrants attached. The
Ultra Short Fund will not invest in illiquid corporate debt securities or
convertible corporate debt securities that are convertible at the election of
the issuer. Appendix A to this Statement of Additional Information describes the
various ratings assigned to fixed income securities by Moody's and S&P.
4
MUNICIPAL BONDS. The Ultra Short Fund may invest in securities issued
by states, municipalities and other political subdivisions, agencies,
authorities and instrumentalities of states and multistate agencies or
authorities. Municipal bonds share the attributes of debt/fixed income
securities in general, but are generally issued by states, municipalities and
other political subdivisions, agencies, authorities and instrumentalities of
states and multistate agencies or authorities. The municipal bonds which the
Fund may purchase include general obligation bonds and limited obligation bonds
(or revenue bonds), including industrial development bonds issued pursuant to
former federal tax law. General obligation bonds are obligations involving the
credit of an issuer possessing taxing power and are payable from such issuer's
general revenues and not from any particular source. Limited obligation bonds
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Tax-exempt private activity bonds and industrial
development bonds generally are also revenue bonds and thus are not payable from
the issuer's general revenues. The credit and quality of private activity bonds
and industrial development bonds are usually related to the credit of the
corporate user of the facilities. Payment of interest on and repayment of
principal of such bonds is the responsibility of the corporate user (and/or any
guarantor).
Under the Internal Revenue Code, certain limited obligation bonds are
considered "private activity bonds" and interest paid on such bonds is treated
as an item of tax preference for purposes of calculating federal alternative
minimum tax liability.
Some longer-term municipal bonds give the investor the right to "put"
or sell the security at par (face value) within a specified number of days
following the investor's request - usually one to seven days. This demand
feature enhances a security's liquidity by shortening its effective maturity and
enables it to trade at a price equal to or very close to par. If a demand
feature terminates prior to being exercised, the Fund would hold the longer-term
security, which could experience substantially more volatility.
Municipal bonds are subject to credit and market risk. Generally,
prices of higher quality issues tend to fluctuate less with changes in market
interest rates than prices of lower quality issues and prices of longer maturity
issues tend to fluctuate more than prices of shorter maturity issues.
The Fund may purchase and sell portfolio investments to take advantage
of changes or anticipated changes in yield relationships, markets or economic
conditions. The Fund may also sell municipal bonds due to changes in the
Investment Adviser's evaluation of the issuer or cash needs resulting from
redemption requests for Fund shares. The secondary market for municipal bonds
typically has been less liquid than that for taxable debt/fixed income
securities, and this may affect the Fund's ability to sell particular municipal
bonds at then-current market prices, especially in periods when other investors
are attempting to sell the same securities.
Prices and yields on municipal bonds are dependent on 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.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial condition
of an issuer of municipal bonds may not be as extensive as that which is made
available by corporations whose securities are publicly traded.
Obligations of issuers of municipal bonds are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. Congress or state legislatures may seek to extend the time for
payment of principal or interest, or both, or to impose other constraints upon
enforcement of such obligations. There is also the possibility that as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest and principal on their municipal bonds
may be materially affected or their obligations may be found to be invalid or
unenforceable. Such litigation or conditions may from time to time have the
effect of
5
introducing uncertainties in the market for municipal bonds or certain segments
thereof, or of materially affecting the credit risk with respect to particular
bonds. Adverse economic, business, legal or political developments might affect
all or a substantial portion of the Fund's municipal bonds in the same manner.
HEDGING STRATEGIES. The Ultra Short Fund may, but is not required to,
use financial contracts for risk management. Generally, the value of these
financial contracts depends upon, or is derived from, the value of an underlying
asset, reference rate or index, and may relate to stocks, bonds, interest rates
and related indices. Examples of these instruments include options contracts,
futures contracts, options on futures contracts and swap agreements. The
Investment Adviser may decide not to employ any of these strategies and there is
no assurance that any hedging strategy used by the Fund will succeed.
Use of financial contracts involves risks different from, or possibly
greater than, the risks associated with investing directly in securities and
other more traditional investments. The following provides a more general
discussion of important risk factors relating to all financial contracts that
may be used by the Fund.
(i) Management Risk. Financial contracts are highly specialized
instruments that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a financial contract requires
an understanding not only of the underlying instrument but also of the financial
contract itself, without the benefit of observing the performance of the
financial contract under all possible market conditions.
(ii) Credit Risk. The use of a financial contract involves the risk
that a loss may be sustained as a result of the failure of another party to the
contract (usually referred to as a "counterparty") to make required payments or
otherwise comply with the contract's terms.
(iii) Liquidity Risk. Liquidity risk exists when a particular financial
contract is difficult to purchase or sell. If a transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated financial contracts), it may not be possible to initiate a
transaction or liquidate a position at an advantageous time or price.
(iv) Leverage Risk. Because many financial contracts have a leverage
component, adverse changes in the value or level of the underlying asset,
reference rate or index can result in a loss substantially greater than the
amount invested in the financial contract itself. Certain financial contracts
have the potential for unlimited loss, regardless of the size of the initial
investment.
(v) Market and Other Risks. Like most other investments, financial
contracts are subject to the risk that the market value of the instrument will
change in a way detrimental to the Fund's interest. If the Investment Adviser
incorrectly forecasts the values of securities, currencies or interest rates or
other economic factors in using financial contracts for the Fund, the Fund might
have been in a better position if it had not entered into the transaction at
all. While some strategies involving financial contracts can reduce the risk of
loss, they can also reduce the opportunity for gain or even result in losses by
offsetting favorable price movements in other Fund investments. The Fund may
also have to buy or sell a security at a disadvantageous time or price because
the Fund is legally required to maintain offsetting positions or asset coverage
in connection with certain transactions.
Other risks in using financial contracts include the risk of mispricing
or improper valuation of financial contracts and the inability of financial
contracts to correlate perfectly with underlying assets, rates and indices. Many
financial contracts, in particular privately negotiated financial contracts, are
complex and often valued subjectively. Improper valuations can result in
increased cash payment requirements to counterparties or a loss of value to the
Fund. Also, the value of financial contracts may not correlate perfectly, or at
all, with the value of the assets, reference rates or indices they are designed
to
6
closely track. In addition, the Fund's use of financial contracts may accelerate
the recognition of income by the Fund, defer the recognition of losses, after
the character of gain and loss realized by the Fund, and cause the Fund to
realize higher amounts of short-term capital gains (generally taxed at ordinary
income tax rates) than if the Fund had not used such instruments.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Ultra Short Fund may
invest up to 10% of its assets in securities of other investment companies, such
as open-end and closed-end management investment companies, or in pooled
accounts or other investment vehicles that do not invest in foreign markets. As
a shareholder of an investment company, the Ultra Short Fund may indirectly bear
service and other fees that are in addition to the fees the Fund pays its
service providers.
Subject to the restrictions and limitations of the 1940 Act, the Ultra
Short Fund may elect to pursue its investment objective either by investing
directly in securities or by investing in one or more underlying investment
vehicles or companies that have substantially similar investment objectives,
policies and limitations as the Ultra Short Fund.
COVERED SHORT SALES. The Ultra Short Fund may make covered short sales
as part of its overall portfolio management strategy or to offset a potential
decline in value of a security. A "short sale" is the sale by the Fund of a
security that has been borrowed from a broker or other institution on the
expectation that the market price will drop. If the price of the security drops,
the Fund may replace the security sold short by purchasing the security in the
open market at a lower price than at which it sold the security, resulting in a
gain. If the price of the security rises, the Fund may have to replace the
security by purchasing the security in the open market at a higher price than at
which it sold the security, resulting in a loss. In a covered short sale, the
Fund either (1) borrows and sells securities it already owns (also known as a
short sale "against the box"), or (2) instructs the custodian to segregate cash,
U.S. government securities, or other liquid securities in an amount equal to the
market value of the securities sold short.
The Fund may have to pay a fee to borrow the securities sold short and
is often obligated to pay over any accrued interest and dividends on such
borrowed securities. In addition, the successful use of covered short sales may
be adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
LOANS OF PORTFOLIO SECURITIES. For the purpose of achieving income,
each Fund may lend its portfolio securities to brokers, dealers, and other
financial institutions provided a number of conditions are satisfied, including
that the loan is fully collateralized. When the Fund lends portfolio securities,
its investment performance will continue to reflect changes in the value of the
securities loaned, and the Fund will also receive a fee or interest on the
collateral. Securities lending involves the risk of loss of rights in the
collateral or delay in recovery of the collateral if the borrower fails to
return the security loaned or becomes insolvent. The Fund may pay lending fees
to a party arranging the loan.
MORTGAGE SECURITIES
MORTGAGE-RELATED SECURITIES. Most mortgage-related securities provide a
monthly payment that consists of both interest and principal payments. In
effect, these payments are a "pass-through" of the monthly payments made by
individual borrowers on their residential mortgage loans, net of any fees paid
to the issuer or guarantor of such securities. Additional payments are caused by
unscheduled payments resulting from the sale of the underlying residential
property, refinancing or foreclosure net of fees or costs which may be incurred.
Some mortgage-related securities have additional features that entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, regardless of whether or not the mortgagor actually makes
the payment. Any guarantees of interest and principal payments may be either as
to timely or ultimate payment.
7
The average maturity of pass-through pools varies with the maturities
of the underlying mortgage instruments. In addition, a pool's average maturity
may be shortened by unscheduled or early payments of principal and interest on
the underlying mortgages. Factors affecting mortgage prepayments include the
level of interest rates, general economic and social conditions, and the
location and age of the mortgage. Since prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool or group of pools. However, the average life will be
substantially less than the stated maturity.
Mortgage-related securities may be classified into the following
principal categories, according to the issuer or guarantor:
Government mortgage-related securities consist of both
governmental and government-related securities. Governmental securities
are backed by the full faith and credit of the U.S. Government. The
Government National Mortgage Association ("GNMA"), the principal U.S.
Government guarantor of such securities, is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and
interest, but not of market value, on securities issued by approved
institutions and backed by pools of Federal Housing
Administration-insured or Veterans Administration-guaranteed mortgages.
Government-related securities are issued by U.S. Government-sponsored
corporations and are not backed by the full faith and credit of the
U.S. Government. Issuers include Fannie Mae ("FNMA") and Freddie Mac
("FHLMC"). FNMA is a U.S. government-sponsored corporation owned
entirely by private stockholders. Pass-through securities issued by
FNMA are guaranteed as to timely payment of principal and interest by
FNMA. FHLMC issues mortgage-related securities representing interests
in mortgage loans pooled by it. FHLMC is a U.S. Government-sponsored
corporation that guarantees the timely payment of interest and ultimate
collection of principal, and its stock is publicly traded.
Private mortgage-related securities represent interests in, or
are collateralized by, pools consisting principally of residential
mortgage loans created by non-governmental issuers. These securities
generally offer a higher rate of interest than governmental and
government-related mortgage-related securities because there are no
direct or indirect government guarantees of payment as in the former
securities, although certain credit enhancements may exist. Securities
issued by private organizations may not have the same degree of
liquidity as those with direct or indirect government guarantees.
Private mortgage-related securities purchased by the Mortgage
Securities Funds must be rated in one of the two highest rating
categories by at least one NRSRO.
FNMA is subject to general regulation by the Secretary of Housing and
Urban Development. Its common stock is publicly traded on the New York Stock
Exchange. FNMA purchases residential mortgages from a list of approved seller
services, which includes Federal and state savings associations, savings banks,
commercial banks, credit unions and mortgage bankers.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its common and
preferred stock is publicly traded on the New York Stock Exchange. FHLMC issues
Participation Certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio.
With respect to private mortgage-related securities, timely payment of
interest and principal may be supported by various forms of credit enhancements,
including individual loan, title, pool and hazard insurance. These credit
enhancements may offer two types of protection: (i) liquidity protection, and
8
(ii) protection against losses resulting from ultimate default by an obligor and
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties or through various
means of structuring the transaction as well as a combination of such
approaches. The Mortgage Securities Funds will not pay any additional fees for
such credit support, although the existence of credit support may increase the
price of a security.
Credit enhancements can come from external providers such as banks or
financial insurance companies. Alternatively, they may come from the structure
of a transaction itself. Examples of credit support arising out of the structure
of the transaction include "senior-subordinated securities" (multiple class
securities with one or more classes subordinate to other classes as to the
payment of principal thereof and interest thereon, with the result that defaults
on the underlying assets are borne first by the holders of the subordinated
class), creation of "reserve funds" (where cash or investments, sometimes funded
from a portion of the payments on the underlying assets, are held in reserve
against future losses) and "over collateralization" (where the scheduled
payments on, or the principal amount of, the underlying assets exceeds that
required to make payment of the securities and pay any servicing or other fees).
The degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquencies or losses in excess of those anticipated could
adversely affect the return on an investment in such issue. There can be no
assurance that the private insurers can meet their obligations under the
policies.
Each Mortgage Securities Fund may only invest in private
mortgage-related securities to the extent the private mortgage-related
securities are entitled to a 20% risk weighting under the capital adequacy
guidelines of the Office of Thrift Supervision ("OTS") and Office of the
Comptroller of the Currency ("OCC").
Commercial mortgage-backed securities, in which only the Ultra Short
Fund may invest, include securities that reflect an interest in, and are secured
by, mortgage loans on commercial real property. The market for commercial
mortgage-backed securities developed more recently and in terms of total
outstanding principal amount of issues is relatively small compared to the
market for residential single-family mortgage-backed securities. Many of the
risks of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage- or asset-backed securities.
Other mortgage-related securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, including stripped
mortgage-backed securities.
If mortgage securities are purchased at a premium, mortgage
foreclosures and unscheduled principal prepayments may result in some loss of
the holders' principal investment to the extent of the premium paid. On the
other hand, if mortgage securities are purchased at a discount, both a scheduled
payment of principal and an unscheduled repayment of principal will increase
current and total returns.
ADJUSTABLE RATE MORTGAGE SECURITIES. The adjustable rate feature of the
mortgages underlying the adjustable rate mortgage securities ("ARMS") in which
the Mortgage Securities Funds invest generally will help to reduce sharp changes
in each Fund's net asset value in response to normal interest
9
rate fluctuations to the extent that each Fund is invested in ARMS. As the
interest rates on the mortgages underlying a Fund's investments in ARMS are
reset periodically, the yields of such portfolio securities will gradually align
themselves to reflect changes in market rates so that the market value of such
securities will remain relatively constant as compared to fixed-rate
instruments. This in turn should cause the net asset value of the Fund to
fluctuate less than it would if the Fund invested entirely in more traditional
longer-term, fixed-rate debt securities.
In contrast to fixed-rate mortgages, which generally decline in value
during periods of rising interest rates, ARMS permit a Fund to participate in
increases in interest rates through periodic adjustments in the coupons of the
underlying mortgages. This should produce both higher current yields and lower
price fluctuations during such periods to the extent the Fund has invested in
ARMS. Furthermore, if prepayments of principal are made on the underlying
mortgages during periods of rising interest rates, the Funds generally will be
able to reinvest such amounts in securities with a higher yield. For certain
types of ARMS, the rate of amortization of principal, as well as interest
payments, can and does change in accordance with movements in a particular,
pre-specified, published interest rate index. The amount of interest due to an
ARMS holder is calculated by adding a specified additional amount, the "margin,"
to the index, subject to limitations or "caps" on the maximum or minimum
interest that is charged to the mortgagor during the life of the mortgage or to
maximum and minimum changes in the interest rate during a given period. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.
As a result, the Mortgage Securities Funds will not benefit from increases in
interest rates to the extent that interest rates rise to the point where they
cause the current coupon of adjustable rate mortgages held as investments to
exceed the maximum allowable annual (usually 100 to 200 basis points) or
lifetime reset limits (or "cap rates") for a particular mortgage. Fluctuations
in interest rates above these levels could cause such mortgage securities to
behave more like long-term, fixed-rate debt securities. Moreover, a Fund's net
asset value could vary to the extent that current yields on mortgage-backed
securities are different than market yields during interim periods between
coupon reset dates. Thus, investors could suffer some principal loss if they
sold their shares of the Fund before the interest rates on the underlying
mortgages were adjusted to reflect current market rates.
The interest rates paid on the mortgages underlying the ARMS in which
the Mortgage Securities Funds invest generally are readjusted at intervals of
one year or less to an increment over some predetermined interest rate index.
There are several main categories of indices: those based on U.S. Treasury
securities and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly utilized indices include
the one-year, three-year and five-year constant maturity Treasury rates, the
three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-month,
six-month or one-year London Interbank Offered Rate (LIBOR), rates on six-month
certificates of deposit, the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Home Loan Bank Cost of Funds index, tend to lag behind changes in
market rate levels and are somewhat less volatile.
All mortgage-backed securities carry the risk that interest rate
declines may result in accelerated prepayment of mortgages and the proceeds from
such prepayment of mortgages may be reinvested at lower prevailing interest
rates. During periods of declining interest rates, the coupon rates for ARMS may
readjust downward, resulting in lower yields to the Mortgage Securities Funds.
Further, because of this feature, ARMS may have less potential for capital
appreciation than fixed-rate instruments of comparable maturities during periods
of declining interest rates. Therefore, ARMS may be less effective than
fixed-rate securities as a means of "locking in" long-term interest rates.
10
MORTGAGE DOLLAR ROLLS. The Ultra Short Fund may enter into mortgage
dollar rolls. A mortgage dollar roll is a transaction in which the Fund sells a
mortgage-backed security to a broker or other financial institution and
simultaneously contracts with the same counterparty to repurchase substantially
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Fund loses the right to
receive principal and interest paid on the securities sold. However, the Fund
benefits to the extent of any difference between (i) the price received for the
securities sold and (ii) the lower forward price for the future purchase and/or
fee income plus the interest earned on the cash proceeds of the securities sold.
Unless the benefits of a mortgage dollar roll exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the roll, the use of this technique
will diminish the Fund's performance.
Successful use of mortgage dollar rolls depends upon the Investment
Adviser's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, the Fund may
experience a loss.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage
obligations ("CMOs") and real estate mortgage investment conduits ("REMICs")
represent a beneficial interest in a pool of mortgage loans or mortgage-backed
securities typically held by a trust. The beneficial interests are evidenced by
certificates issued pursuant to a pooling and servicing agreement. The
certificates are usually issued in multiple classes with the specific rights of
each class set forth in the pooling and servicing agreement and the offering
documents for the security. The pooling and servicing agreement is entered into
by a trustee and a party that is responsible for pooling and conveying the
mortgage assets to the trust, sometimes referred to as the depositor. Various
administrative services related to the underlying mortgage loans, such as
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts and collection of insurance claims are provided by
servicers. A master servicer, which may be the depositor or an affiliate of the
depositor, is generally responsible for supervising and enforcing the
performance by the servicers of their duties and maintaining the insurance
coverages required by the terms of the certificates. In some cases, the master
servicer acts as a servicer of all or a portion of the mortgage loans.
CMOs may be issued or guaranteed by GNMA, FNMA or FHLMC, or they may be
issued by private entities such as financial institutions, investment bankers,
mortgage bankers and single-purpose stand-alone finance subsidiaries or trusts
of such institutions. The CMOs and a form of them known as REMICs typically have
a multi-class structure ("Multi-Class Mortgage-Related Securities"). Multi-Class
Mortgage-Related Securities issued by private issuers may be collateralized by
pass-through securities guaranteed by GNMA or issued by FNMA or FHLMC, or they
may be collateralized by whole loans or pass-through mortgage-related securities
of private issuers. Each class has a specified maturity or final distribution
date. In one structure, payments of principal, including any principal
prepayments, on the collateral are applied to the classes in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class until all classes having an earlier stated
maturity or final distribution date have been paid in full. In other structures,
certain classes may pay concurrently, or one or more classes may have a priority
with respect to payments on the underlying collateral up to a specified amount.
The Funds will not invest in any class with residual characteristics. In
addition, each Fund limits its purchase of CMOs and REMICs issued by private
entities to those that are rated in one of the two highest rating categories by
at least one NRSRO.
PERCENTAGE INVESTMENT LIMITATIONS. Unless otherwise stated, all
percentage limitations on Fund investments will apply at the time of investment.
A Fund would not be deemed to have violated these limitations unless an excess
or deficiency occurs or exists immediately after and as a result of an
investment.
11
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The Trust has adopted the following investment restrictions for each
Fund, none of which may be changed without the approval of a majority of the
outstanding shares of the respective Fund, as defined under "General
Information" in this Statement of Additional Information. In addition to these
investment restrictions, the investment objective of each Fund is fundamental
and cannot be changed without the approval of that Fund's shareholders.
Each Fund (except the Ultra Short Fund) shall:
(1) Limit its investments and investment techniques so as to
qualify for investment by national banks, federal savings
associations, and federal credit unions.
Each Fund may not:
(1) Invest more than 5% of its total assets in the securities of
any one issuer, other than securities issued or guaranteed by
the United States Government or its agencies or
instrumentalities, except that up to 25% of the value of the
Fund's total assets may be invested without regard to this 5%
limitation. (The Money Market Fund considers loans of federal
funds to be cash equivalents and not securities for purposes
of diversification.)
(2) Act as an underwriter of securities, except to the extent that
the Trust may be deemed to be an "underwriter" in connection
with the purchase of securities for the Fund directly from an
issuer or an underwriter thereof.
(3) Lend any of its assets, except portfolio securities. This
shall not prevent the Fund from purchasing or holding debt
obligations, entering into repurchase agreements, and loaning
Federal funds and other day(s) funds to FDIC Insured
Institutions (as defined in the Prospectus), in each case to
the extent permitted by the Fund's investment objective and
management policies.
The Money Market Fund, Short U.S. Government Fund and U.S. Government
Mortgage Fund each may not:
(1) Enter into reverse repurchase agreements exceeding in the
aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse
repurchase agreements.
The Money Market Fund and Short U.S. Government Fund each may not:
(1) Borrow money except from banks for temporary or emergency
purposes and in an amount not exceeding 10% of the value of
the Fund's net assets, or mortgage, pledge or hypothecate its
assets, except in connection with any such borrowing and in
amounts not in excess of 20% of the value of its net assets.
The borrowing provision is not for investment leverage, but
solely to facilitate management of the Fund by enabling the
Fund to meet redemption requests when the liquidation of
portfolio securities is considered to be disadvantageous. The
Fund's net income will be reduced if the interest expense of
borrowings incurred to meet redemption requests and avoid
liquidation of portfolio securities exceeds the interest
income of those securities. To the extent that borrowings
exceed 5% of the value of the Fund's net assets, such
borrowings will be
12
repaid before any investments are made. The Fund's ability to
enter into reverse repurchase agreements is not restricted by
this paragraph.
(2) Invest more than 25% of the value of the Fund's total assets
in the securities of issuers in any single industry; provided
that there shall be no such limitation on the purchase of
obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities, or time
deposits (including certificates of deposit), savings deposits
and bankers' acceptances of United States branches of United
States banks. (The Money Market Fund considers loans of
federal funds to be cash equivalents and not securities for
purposes of diversification.)
(3) Purchase securities on margin or make short sales of
securities; write or purchase put or call options or
combinations thereof; or purchase or sell real estate, real
estate mortgage loans, real estate investment trust
securities, commodities or commodity contracts, or oil and gas
interests.
The Ultra Short Fund may not:
(1) Borrow money except from banks (a) for temporary or emergency
purposes and in an amount not exceeding 1/3 of the value of
the Fund's net assets, or (b) to meet redemption requests
without immediately selling any portfolio securities and in an
amount not exceeding in the aggregate one-third of the value
of the Fund's total assets, less liabilities other than
borrowing; or mortgage, pledge or hypothecate its assets
except in connection with any such borrowing and in amounts
not in excess of 20% of the value of its net assets. The
borrowing provision of (b) above is not for investment
leverage, but solely to facilitate management of the Fund by
enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is considered to be
disadvantageous. The Fund's net income will be reduced if the
interest expense of borrowings incurred to meet redemption
requests and avoid liquidation of portfolio securities exceeds
the interest income of those securities. To the extent that
borrowings exceed 5% of the value of the Fund's net assets,
such borrowings will be repaid before any investments are
made. The Fund's ability to enter into reverse repurchase
agreements, dollar rolls and similar techniques is not
restricted by this paragraph (1) and collateral arrangements
with respect to margins for interest rate futures contracts
and options thereon are not deemed to be a pledge of assets
for the purpose of this paragraph (1).
The Ultra Short Mortgage Fund, Ultra Short Fund, Intermediate Mortgage
Fund and U.S. Government Fund each may not:
(1) Invest more than 25% of the value of the Fund's total assets
in the securities of issuers in any single industry; provided
that there shall be no such limitation on investments in the
mortgage and mortgage finance industry (in which more than 25%
of the value of the Fund's total assets will, except for
temporary defensive purposes, be invested) or on the purchase
of obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities.
The Ultra Short Mortgage Fund may not:
(1) Borrow money except from banks (a) for temporary or emergency
purposes and in an amount not exceeding 10% of the value of
the Fund's net assets, or (b) to meet redemption requests
without immediately selling any portfolio securities and in an
amount not exceeding in the aggregate one-third of the value
of the Fund's total assets,
13
less liabilities other than borrowing; or mortgage, pledge or
hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 20% of the value of
its net assets. The borrowing provision of (b) above is not
for investment leverage, but solely to facilitate management
of the Fund by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is considered to
be disadvantageous. The Fund's net income will be reduced if
the interest expense of borrowings incurred to meet redemption
requests and avoid liquidation of portfolio securities exceeds
the interest income of those securities. To the extent that
borrowings exceed 5% of the value of the Fund's net assets,
such borrowings will be repaid before any investments are
made.
(2) Purchase securities on margin or make short sales of
securities; write or purchase put or call options or
combinations thereof or purchase or sell real estate, real
estate mortgage loans (except that the Fund may purchase and
sell Mortgage-Related Securities), real estate investment
trust securities, commodities or commodity contracts, or oil
and gas interests.
The Intermediate Mortgage Fund may not:
(1) Borrow money except from banks (a) for temporary purposes and
in an amount not exceeding 10% of the value of the Fund's net
assets, or (b) to meet redemption requests without immediately
selling any portfolio securities and in an amount not
exceeding in the aggregate one-third of the value of the
Fund's total assets, less liabilities other than such
borrowing; or mortgage, pledge or hypothecate its assets
except in connection with any such borrowing and in amounts
not in excess of 20% of the value of its net assets provided
that there shall be no such limitation on deposits made in
connection with the entering into and holding of interest rate
futures contracts and options thereon. The borrowing provision
of (b) above is not for investment leverage, but solely to
facilitate management of the Fund by enabling the Fund to meet
redemption requests when the liquidation of portfolio
securities is considered to be disadvantageous. To the extent
that borrowings exceed 5% of the value of the Fund's net
assets, such borrowings will be repaid before any investments
are made. The Fund's ability to enter into reverse repurchase
agreements is not restricted by this paragraph (1) and
collateral arrangements with respect to margins for interest
rate futures contracts and options thereon are not deemed to
be a pledge of assets for the purpose of this paragraph (1).
(2) Purchase securities on margin or make short sales of
securities; write or purchase put or call options or
combinations thereof except that the Fund may write covered
call options and purchase call or put options on investments
eligible for purchase by the Fund; or purchase or sell real
estate, real estate mortgage loans (except that the Fund may
purchase and sell Mortgage-Related Securities), real estate
investment trust securities, commodities or commodity
contracts, or oil and gas interests; except that the Fund may
enter into interest rate futures contracts and may write call
options and purchase call and put options on interest rate
futures contracts if (a) as to interest rate futures
contracts, each futures contract is (i) for the sale of a
financial instrument (a "short position") to hedge the value
of securities held by the Fund or (ii) for the purchase of a
financial instrument of the same type and for the same
delivery month as the financial instrument underlying a short
position held by the Fund (a "long position offsetting a short
position"), (b) the sum of the aggregate futures market prices
of financial instruments required to be delivered under open
futures contract sales and the aggregate purchase prices under
open futures contract purchases does not exceed 30% of the
value of the Fund's total assets, and (c) immediately
thereafter, no more than 5% of the Fund's total
14
assets would be committed to margin. This ability to invest
interest rate futures contracts and options thereon is not for
speculation, but solely to permit hedging against anticipated
interest rate changes.
The U.S. Government Mortgage Fund may not:
(1) Borrow money except from banks (a) for temporary or emergency
purposes and in an amount not exceeding 10% of the value of
the Fund's net assets, or (b) to meet redemption requests
without immediately selling any portfolio securities and in an
amount not exceeding in the aggregate one-third of the value
of the Fund's total assets, less liabilities other than
borrowing; or mortgage, pledge or hypothecate its assets
except in connection with any such borrowing and in amounts
not in excess of 20% of the value of its net assets provided
that there shall be no such limitation on deposits made in
connection with the entering into and holding of interest rate
futures contracts and options thereon. The borrowing provision
of (b) above is not for investment leverage, but solely to
facilitate management of the Fund by enabling the Fund to meet
redemption requests when the liquidation of portfolio
securities is considered to be disadvantageous. The Fund's net
income will be reduced if the interest expense of borrowings
incurred to meet redemption requests and avoid liquidation of
portfolio securities exceeds the interest income of those
securities. To the extent that borrowings exceed 5% of the
value of the Fund's net assets, such borrowings will be repaid
before any investments are made. The Fund's ability to enter
into reverse repurchase agreements is not restricted by this
paragraph (1) and collateral arrangements with respect to
margins for interest rate futures contracts and options
thereon are not deemed to be a pledge of assets for the
purpose of this paragraph (1).
(2) Purchase securities on margin or make short sales of
securities; write or purchase put or call options or
combinations thereof except that the Fund may write covered
call options and purchase call or put options on securities in
which the Fund may invest; or purchase or sell real estate,
real estate mortgage loans (except that the Fund may purchase
and sell Mortgage-Related Securities), real estate investment
trust securities, commodities or commodity contracts, or oil
and gas interests except that the Fund may enter into interest
rate futures contracts and may write call options and purchase
call and put options on interest rate futures contracts if (a)
as to interest rate futures contracts, each futures contract
is (i) for the sale of a financial instrument (a "short
position") to hedge the value of securities held by the Fund
or (ii) for the purchase of a financial instrument of the same
type and for the same delivery month as the financial
instrument underlying a short position held by the Fund (a
"long position offsetting a short position"), (b) the sum of
the aggregate futures market prices of financial instruments
required to be delivered under open futures contract sales and
the aggregate purchase prices under open futures contract
purchases does not exceed 30% of the value of the Fund's total
assets, and (c) immediately thereafter, no more than 5% of the
Fund's total assets would be committed to margin. This ability
to invest in interest rate futures contracts and options
thereon is not for speculation, but solely to permit hedging
against anticipated interest rate changes.
NON-FUNDAMENTAL POLICIES
The Trust has also adopted certain investment restrictions which are
non-fundamental policies. Unlike fundamental policies, which may only be changed
with the approval of a majority of the
15
outstanding shares of the Fund, non-fundamental policies may be changed by the
Trust's Board of Trustees without shareholder approval.
The Funds have the following non-fundamental policies:
All Funds each:
(1) May not invest more than 15% (10% in the case of the Money
Market Fund) of its net assets in illiquid securities,
including repurchase agreements maturing in more than seven
days.
All the Funds except the Ultra Short Fund each:
(1) Limit investments in certificates of deposit, time deposits or
savings account investments to those that are negotiable and
have a remaining maturity of 90 days or less.
(2) Limit investments in bankers' acceptances to bankers'
acceptances with maturities of ninety days or less issued by
FDIC insured institutions that are eligible for investment
without specific statutory limitation by national banks,
federal savings associations and federal credit unions under
current applicable federal regulations.
(3) May not purchase obligations of Federal Land Banks, Federal
Intermediate Credit Banks, the Export-Import Bank of the
United States, the Commodity Credit Corporation, the National
Credit Union Administration and the Tennessee Valley
Authority.
(4) Limit the use of repurchase agreements to repurchase
agreements involving obligations of the U.S. Government,
including zero coupon Treasury securities that have been
stripped of either principal or interest by the U.S.
Government so long as the maturity of these securities does
not exceed ten years, and obligations of the Federal Home Loan
Banks, Fannie Mae, the Government National Mortgage
Association, the Federal Farm Credit Banks, the Federal
Financing Bank, the Student Loan Marketing Association and
Freddie Mac.
The Money Market Fund and Short U.S. Government Fund each:
(1) May not invest in reverse repurchase agreements until such
time as federal credit unions may invest in them without
limitation.
(2) May not loan federal funds until such time as investors are
limited to institutions meeting the requirements of Regulation
D of the Board of Governors of the Federal Reserve System.
The Ultra Short Fund:
(1) May not invest in foreign securities that are not U.S. dollar
denominated.
(2) May only invest in liquid corporate debt securities and may
not invest more than 30% of its total assets in corporate debt
securities. In addition, the Fund may not invest in
convertible corporate debt securities that are exercisable at
the option of the issuer.
16
The Short U.S. Government Fund:
(1) Will invest, under normal circumstances, at least 80% of its
net assets (plus the amount of any borrowings for investment
purposes) in investments issued or guaranteed by the U.S.
Government or issued or guaranteed by U.S. Government agencies
or instrumentalities. In addition to Board approval, change of
this non-fundamental policy requires 60 days' prior notice to
shareholders as required by Rule 35d-1 under the Investment
Company Act of 1940.
The Ultra Short Mortgage Fund, Intermediate Mortgage Fund and U.S.
Government Mortgage Fund each:
(1) Each Fund invests primarily in "securities backed by or
representing an interest in mortgages on domestic residential
housing or manufactured housing" meeting the definition of
such assets for purposes of the qualified thrift lender
("QTL") test under the current Office of Thrift Supervision
("OTS") Regulations. Pending any revisions of the current OTS
Regulations, each Mortgage Securities Fund expects that,
absent extraordinary market developments, at least 65% of its
assets will qualify for QTL purposes for savings associations,
although actual percentages may be higher. In addition, each
Mortgage Securities Fund will not purchase any investments
having a risk-based weighting in excess of 20% under the
current risk-based capital regulations established by the OTS.
Also, each Mortgage Securities Fund will not purchase any
investments having a risk-based weighting for banks in excess
of 20% under current federal regulations of the appropriate
regulatory agencies. Furthermore, each Mortgage Securities
Fund limits its investments to those permissible without
specific statutory limitation for federal savings
associations, national banks and federal credit unions under
current applicable federal regulations.
The Ultra Short Mortgage Fund:
(1) May not invest in interest rate caps and floors until such
time as the appropriateness of these investments for federal
credit unions is clarified.
The Ultra Short Mortgage Fund and Intermediate Mortgage Fund:
(1) Will invest, under normal circumstances, at least 80% of its
net assets (plus the amount of any borrowing for investment
purposes) in mortgage investments and related instruments. In
addition to Board approval, change of this non-fundamental
policy requires 60 days' prior notice to shareholders as
required by Rule 35d-1 under the Investment Company Act of
1940.
The U.S. Government Mortgage Fund:
(1) May not invest in reverse repurchase agreements, interest rate
futures contracts, options and options on interest rate
futures contracts, in each case until such time as federal
credit unions may invest in them without limitation.
(2) May not loan federal funds until such time as investors are
limited to institutions meeting the requirements of Regulation
D of the Board of Governors of the Federal Reserve System.
(3) Will invest, under normal circumstances, at least 80% of its
net assets (plus the amount of any borrowings for investment
purposes) in mortgage-related investments issued or
17
guaranteed by the U.S. Government or issued or guaranteed by
U.S. Government agencies or instrumentalities. In addition to
Board approval, change of this non-fundamental policy requires
60 days' prior notice to shareholders as required by Rule
35d-1 under the Investment Company Act of 1940.
PURCHASE AND REDEMPTION OF SHARES
Investors may be charged a fee if they effect transactions through a
broker or agent. Brokers and intermediaries are authorized to accept orders on
the Funds' behalf.
A purchase order is considered binding upon the investor. Should it be
necessary to cancel an order because payment was not timely received, the Trust
may hold the investor responsible for the difference between the price of the
shares when ordered and the price of the shares when the order was cancelled. If
the investor is already a shareholder of the Trust, the Trust may redeem shares
from the investor's account in an amount equal to such difference. In addition,
the Trust, the Investment Adviser and/or the Distributor may prohibit or
restrict the investor from making future purchases of a Fund's shares.
The Trust reserves the right to suspend the right of redemption and to
postpone the date of payment upon redemption (1) for any period during which the
New York Stock Exchange (the "Exchange") is closed, other than customary weekend
and holiday closings (i.e., New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day), or during which trading on the Exchange is
restricted, (2) for any period during which an emergency, as defined by the
rules of the Securities and Exchange Commission, exists as a result of which (i)
disposal by the Fund of securities held by each Fund is not reasonably
practicable, or (ii) is not reasonably practicable for the Fund to determine the
value of the Fund's net assets, or (3) for such other periods as the Securities
and Exchange Commission, or any successor governmental authority, may by order
permit for the protection of shareholders of each Fund.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. The Trustees'
responsibilities include reviewing the actions of the investment adviser,
distributor and administrator.
TRUSTEES AND OFFICERS
Trustees and officers of the Trust, together with information as to
their principal business occupations during the past five years, are shown
below. Each Trustee who is an "interested person" of the Trust, as defined in
the 1940 Act, is indicated by an asterisk. The fund complex consists of the six
Funds in the Trust and the AMF Large Cap Equity Institutional Fund, Inc.
18
POSITION(S) HELD
WITH TRUST, NO. OF
LENGTH OF TIME PRINCIPAL OCCUPATION(S) DURING PAST PORTFOLIOS IN
NAME, BIRTHDATE AND SERVED AND FIVE YEARS, PRIOR RELEVANT FUND COMPLEX
ADDRESS TERM OF OFFICE EXPERIENCE AND OTHER DIRECTORSHIPS OVERSEEN
- --------------------- ------------------- ------------------------------------------ -------------
INDEPENDENT TRUSTEES
Richard M. Amis Trustee since 1997. President, First Federal Community Bank 6
(11/1/50) Indefinite Term of since 1984; Director, First Financial
630 Clarksville Street Office Trust Company since 1993; and Chairman,
Paris, TX 75460 Texas Savings and Community Bankers
Association from 1997 to 1998.
David F. Holland Trustee since 1993 Retired; Chairman of the Board, Chief 6
(11/3/41) and from 1988 to Executive Officer and President,
17 Ledgewood Circle 1989. Indefinite BostonFed Bancorp Inc. from 1995 to
Topsfield, MA 01983 Term of Office 2005; Chairman of the Board from 1989
to 2005 and Chief Executive Officer
from 1986 to 2005, Boston Federal Savings
Bank; Chairman of the Board, Broadway
National Bank from 1997 to 2003; Director,
Federal Home Loan Bank of Boston from
1989 to 1994 and from 1998 to 2003;
Chairman, America's Community Banking
Partners, Inc. from 1995 to 1997;
Director, ACB Investment Services, Inc.
from 1995 to 1997; Director, M.S.B.
Fund, Inc. from 1997 to 2003; Director,
NYCE Corporation from 1995 to 2001;
Director from 1990 to 1995 and Chairman
from 1993 to 1994, America's Community
Bankers; Member from 1995 to 1997 and
President in 1997, Thrift Institution
Advisory Council; and Director, New
England College of Finance since 1999.
19
POSITION(S) HELD
WITH TRUST, NO. OF
LENGTH OF TIME PRINCIPAL OCCUPATION(S) DURING PAST PORTFOLIOS IN
NAME, BIRTHDATE AND SERVED AND FIVE YEARS, PRIOR RELEVANT FUND COMPLEX
ADDRESS TERM OF OFFICE EXPERIENCE AND OTHER DIRECTORSHIPS OVERSEEN
- --------------------- ------------------- ------------------------------------------ -------------
Gerald J. Levy Vice Chairman of the Chairman since 1984 and Director since 6
(3/31/32) Board since 1997 and 1963, Guaranty Bank (from 1959 to 1984,
4000 W. Brown Deer Road Trustee since 1982. he held a series of officer's
Milwaukee, WI 53209 Indefinite Term of positions, including President);
Office Chairman, United States League of
Savings Institutions in 1986; Director,
FISERV, Inc. since 1986; Director,
Republic Mortgage Insurance Company
since 1995; Director, Guaranty
Financial since 1992; Director, Federal
Asset Disposition Association from 1986
to 1989; Director and Vice Chairman,
Federal Home Loan Bank of Chicago since
2005 and from 1978 to 1982; and member
of Advisory Committee, Federal Home
Loan Mortgage Corporation and Federal
National Mortgage Corporation from 1986
to 1987.
William A. McKenna, Jr. Trustee since 2002. Chairman Emeritus and Trustee since 7
(12/26/36) Indefinite Term of 2004, Chairman of the Board and Chief
71-02 Forest Avenue Office Executive Officer from 1992 to 2004 and
Ridgewood, NY 11385 President from 1985 to 2001, Ridgewood
Savings Bank; Director, RSGroup Trust
Company since 2004; Director,
Retirement System Group, Inc. since
1998; Trustee, Irish Educational
Development Foundation, Inc. since
2003; Trustee, The Catholic University
of America since 2002; Trustee, RSI
Retirement Trust since 1998; Trustee,
St. Joseph's College since 1987;
Director, St. Vincent's Services since
1986; Director, Boys Hope Girls Hope
since 1979; Director, Calvary Hospital
Fund since 2000; Director, St. Aloysius
School since 2004; Director, American
Institute of Certified Public
Accountants since 2004; Director, AMF
Large Cap Equity Institutional Fund,
Inc. since 1989; and Director, M.S.B.
Fund, Inc. from 1988 to 2003.
20
POSITION(S) HELD
WITH TRUST, NO. OF
LENGTH OF TIME PRINCIPAL OCCUPATION(S) DURING PAST PORTFOLIOS IN
NAME, BIRTHDATE AND SERVED AND FIVE YEARS, PRIOR RELEVANT FUND COMPLEX
ADDRESS TERM OF OFFICE EXPERIENCE AND OTHER DIRECTORSHIPS OVERSEEN
- --------------------- ------------------- ------------------------------------------ -------------
Christopher M. Owen Trustee since 2005. President and Chief Executive Officer 6
(4/22/47) Indefinite Term of since 1995 and Chief Financial Officer
5615 Chesbro Avenue Office and Senior Vice President of Operations
San Jose, CA 95123 from 1991 to 1995, Meriwest Credit
Union; Director, Meriwest Mortgage, LLC
since 1993; Vice President, Manager -
Financial Markets Group, Westpac Banking
Corporation from 1983 to 1991.
Maria F. Ramirez Trustee since 2005. President and Chief Executive Officer, 6
(1/1/48) Indefinite Term of Maria Fiorini Ramirez, Inc. (global
One Liberty Plaza Office economic and financial consulting firm)
46th Floor since 1992; Director, Independence
New York, NY 10006 Community Bank since 2000; Director,
Statewide Savings Bank, SLA from 1989 to
2000; Director, Schroder Hedge Funds
Bermuda since January 2004; Trustee, Pace
University since 2000 and Member of Pace's
Lubin School of Business Advisory Board
since 1997; Trustee, Notre Dame High
School since 2001; and Trustee, Big
Brother and Big Sister N.J. since 2003.
21
POSITION(S) HELD
WITH TRUST, NO. OF
LENGTH OF TIME PRINCIPAL OCCUPATION(S) DURING PAST PORTFOLIOS IN
NAME, BIRTHDATE AND SERVED AND FIVE YEARS, PRIOR RELEVANT FUND COMPLEX
ADDRESS TERM OF OFFICE EXPERIENCE AND OTHER DIRECTORSHIPS OVERSEEN
- --------------------- ------------------- ------------------------------------------ -------------
INTERESTED TRUSTEES
Rodger D. Shay *+ Chairman of the Board Chairman and Director, Shay Investment 6
(9/26/36) since 1997, Trustee Services, Inc. and Shay Financial
1000 Brickell Avenue since 1993 and Services, Inc. since 1997; Director,
Miami, FL 33131 Trustee from 1985 to Shay Assets Management, Inc. since 1997
1990. Indefinite and Chairman from 1997 to 2005;
Term of Office President, Chief Executive Officer and
Member of the Managing Board, Shay
Assets Management Co. from 1990 to
1997; Director, Horizon Bank, FSB since
1999 and Chairman from 1999 to 2002;
President, U.S. League Securities, Inc.
from 1986 to 1992 and Director from
1986 to 1991; Vice President, AMF Large
Cap Equity Institutional Fund, Inc.
since 1995; Vice President, M.S.B.
Fund, Inc. from 1995 to 2003 and
Director from 2001 to 2003; Director,
First Home Savings Bank, S.L.A. from
1990 to 1998; President, Bolton Shay
and Company and Director and officer of
its affiliates from 1981 to 1985; and
employed by certain subsidiaries of
Merrill Lynch & Co. from 1955 to 1981
(where he served in various executive
positions including Chairman of the
Board, Merrill Lynch Government
Securities, Inc.; and Managing
Director, Debt Trading Division of
Merrill Lynch, Pierce, Fenner & Smith
Inc.).
<FN>
- ----------------------------
* This Trustee is an "interested person" of the Trust under the 1940 Act because
he holds certain positions with the Trust's Distributor and/or Investment
Adviser and because of his financial interest in Shay Investment Services, Inc.,
parent company of the Trust's Investment Adviser, Shay Assets Management, Inc.,
and Distributor, Shay Financial Services, Inc.
+ Rodger D. Shay, Jr., Trustee, is the son of Rodger D. Shay, Chairman of the
Board of Trustees and Trustee.
</FN>
22
POSITION(S) HELD
WITH TRUST, NO. OF
LENGTH OF TIME PRINCIPAL OCCUPATION(S) DURING PAST PORTFOLIOS IN
NAME, BIRTHDATE AND SERVED AND FIVE YEARS, PRIOR RELEVANT FUND COMPLEX
ADDRESS TERM OF OFFICE EXPERIENCE AND OTHER DIRECTORSHIPS OVERSEEN
- --------------------- ------------------- ------------------------------------------ -------------
Rodger D. Shay, Jr.*+ Trustee since 2002. President and Chief Executive Officer, 6
(9/16/59) Indefinite Term of Shay Financial Services, Inc. since
230 West Monroe Street Office 1997; President, Shay Assets
Suite 2810 Management, Inc. since 2005 and Senior
Chicago, IL 60606 Vice President from 1997 to 2005;
Director, Family Financial Holdings, LLC
since 2000; Director, First Financial Bank
and Trust since 2003; and Director, First
Federal Savings and Loan of Memphis from
1989 to 1991.
OFFICERS
Edward E. Sammons, Jr. President since 1998. Chairman, Shay Assets Management, Inc. 7
(12/29/39) Term of Office since 2005 and President from 1997 to
230 West Monroe Street Expires 2005 2005; Executive Vice President and
Suite 2810 member of the Managing Board, Shay
Chicago, IL 60606 Assets Management Co. from 1990 to
1997; Executive Vice President and
member of the Managing Board, Shay
Financial Services, Co. from 1990 to
1997; Vice President and Secretary, AMF
Large Cap Equity Institutional Fund,
Inc. since 1995; and Vice President and
Secretary, M.S.B. Fund, Inc. from 1995
to 2003.
Robert T. Podraza Vice President and Vice President, Shay Investment 6
(10/21/44) Assistant Treasurer Services, Inc. since 1990; Vice
1000 Brickell Avenue since 1998. President and Chief Compliance Officer,
Miami, FL 33131 Term of Office Shay Financial Services, Inc. since
Expires 2005 1990 and 1997, respectively; Vice
President since 1990 and Chief
Compliance Officer from 1997 to 2004,
Shay Assets Management, Inc.; Chief
Compliance Officer, Shay Financial
Services Co. and Shay Assets Management
Co. from 1989 to 1997; and Director,
National Society of Compliance
Professionals from 1996 to 1999.
23
POSITION(S) HELD
WITH TRUST, NO. OF
LENGTH OF TIME PRINCIPAL OCCUPATION(S) DURING PAST PORTFOLIOS IN
NAME, BIRTHDATE AND SERVED AND FIVE YEARS, PRIOR RELEVANT FUND COMPLEX
ADDRESS TERM OF OFFICE EXPERIENCE AND OTHER DIRECTORSHIPS OVERSEEN
- --------------------- ------------------- ------------------------------------------ -------------
Trent M. Statczar Treasurer since 2002. Financial Services Vice President, 7
(8/31/71) Term of Office BISYS Investment Services since 2003;
3435 Stelzer Road Expires 2005 Financial Services Director, BISYS
Columbus, OH 43219 Investment Services from 2000 to 2003;
Financial Services Manager, BISYS
Investment Services from 1998 to 2000;
Financial Services Associate Manager,
BISYS Investment Services from 1997 to
1998; Treasurer, AMF Large Cap Equity
Institutional Fund, Inc. since 2002.
Daniel K. Ellenwood Secretary since 1998. Chief Compliance Officer since 2004, 6
(5/8/69) Term of Office Operations/Compliance Officer from 2003
230 West Monroe Street Expires 2005 to 2004, Operations Manager from 1997
Suite 2810 to 2003, Shay Assets Management, Inc.;
Chicago, IL 60606 Compliance Analyst, Shay Financial
Services, Inc. since 1996.
Frederick J. Schmidt Chief Compliance Senior Vice President and Chief 7
(7/10/59) Officer since 2004. Compliance Officer, CCO Services of
90 Park Avenue Term of Office BISYS Fund Services since 2004; Chief
10th Floor Expires 2005 Compliance Officer of four other
New York, NY 10016 investment companies or fund complexes
that CCO Services of BISYS Fund Services
provides compliance services since 2004;
President, FJS Associates (regulatory
consulting firm) from 2002 to 2004; Vice
President, Credit Agricole Asset
Management, U.S. from 1987 to 2002.
Christine A. Cwik Assistant Secretary Executive Secretary, Shay Assets 6
(8/11/49) since 1999. Management, Inc. since 1999; and
230 West Monroe Street Term of Office Executive Secretary, Shay Investment
Suite 2810 Expires 2005 Services, Inc. from 1997 to 1999.
Chicago, IL 60606
Alaina V. Metz Assistant Secretary Vice President, BISYS Fund Services 7
(4/7/67) since 1999 and since 2002; Chief Administrative
3435 Stelzer Road Assistant Treasurer Officer, BISYS Fund Services from 1995
Columbus, OH 43219 since 2002. to 2002; Assistant Secretary and
Term of Office Assistant Treasurer, AMF Large Cap
Expires 2005 Equity Institutional Fund, Inc. since
1999 and 2002, respectively.
24
The following table sets forth the compensation earned by Trustees from
the Trust and the fund complex for the fiscal year ended October 31, 2004:
PENSION OR ESTIMATED
RETIREMENT ANNUAL TOTAL
AGGREGATE BENEFITS ACCRUED BENEFITS COMPENSATION
COMPENSATION FROM AS PART OF TRUST UPON FROM TRUST AND
TRUSTEE THE TRUST(1) EXPENSES RETIREMENT FUND COMPLEX
- ----------------------- ----------------- ---------------- ---------- --------------
INDEPENDENT TRUSTEES
Richard M. Amis $ 20,500 $ 0 $ 0 $ 20,500
Arthur G. DeRusso(2) 17,500 0 0 17,500
David F. Holland 20,500 0 0 20,500
Gerald J. Levy 20,500 0 0 20,500
William A. McKenna, Jr. 20,500 0 0 20,500
Christopher M. Owen N/A(3) N/A(3) N/A(3) N/A(3)
Maria F. Ramirez N/A(3) N/A(3) N/A(3) N/A(3)
INTERESTED TRUSTEES
Rodger D. Shay 0 0 0 0
Rodger D. Shay, Jr. 0 0 0 0
<FN>
- --------------
(1) Does not include compensation for two telephonic special meetings held
during the fiscal year ended October 31, 2004.
(2) Mr. DeRusso retired from the Board of Trustees April 24, 2005 and is no
longer a Trustee of the Trust.
(3) Mr. Owen and Ms. Ramirez were elected to the Board of Trustees on April 25,
2005 and were not Trustees during the fiscal year ended October 31, 2004.
</FN>
The Independent Trustees receive an annual retainer of $10,000. The
board and committee meeting attendance fee is $1,500 for each in-person meeting
and $500 for each telephonic meeting. During the Trust's last fiscal year, the
Board held four regular in-person meetings and two telephonic special meetings.
The Board of Trustees has two standing committees: the Audit Committee
and the Nominating and Governance Committee. The Audit Committee met three times
during the Trust's last fiscal year. The Nominating and Governance Committee met
once during the Trust's last fiscal year.
The Audit Committee monitors the accounting and reporting policies and
practices of the Trust, the quality and integrity of the financial statements of
the Trust, compliance by the Trust with legal and regulatory requirements and
the independence and performance of the independent registered public
accountant. The members of the Audit Committee are David F. Holland, Chair,
Richard M. Amis, Gerald J. Levy, William A. McKenna, Jr., Christopher M. Owen
and Maria F. Ramirez.
The Nominating and Governance Committee is responsible for selection
and nomination for election or appointment to the Board of the Independent
Trustees. In the event of a vacancy on the Board, the Nominating and Governance
Committee receives suggestions from various sources as to suitable candidates,
including shareholders of the Trust. Suggestions and other correspondence should
be sent in writing to Daniel K. Ellenwood, Secretary, Asset Management Fund, 230
W. Monroe Street, Suite 2810, Chicago, Illinois 60606. The Nominating and
Governance Committee sets appropriate standards and requirements for nominations
for new trustees and reserves the right to interview all candidates and to make
the final selection of any new trustees. The members of the Nominating and
Governance Committee are Richard M. Amis, Chair, David F. Holland, Gerald J.
Levy, William A. McKenna, Jr., Christopher M. Owen and Maria F. Ramirez.
25
The following table sets forth the dollar range of equity securities
beneficially owned by each Trustee as of December 31, 2004:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUNDS
- -------------------------------------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR
RANGE OF EQUITY
SECURITIES IN ALL
REGISTERED
INVESTMENT
COMPANIES
ULTRA U.S. OVERSEEN BY
MONEY SHORT ULTRA SHORT INTERMEDIATE GOVERNMENT TRUSTEE IN FAMILY
MARKET MORTGAGE SHORT U.S. MORTGAGE MORTGAGE OF INVESTMENT
TRUSTEE FUND FUND FUND FUND FUND FUND COMPANIES
- ----------------------- ----------- ----------- ---------- ----------- ------------ ---------- ------------------
INDEPENDENT TRUSTEES
over over over
Richard M. Amis........ $100,000(1) $100,000(1) $0 $100,000(1) $0 $0 over $100,000
over over over over
David F. Holland....... 0 100,000(2) 100,000(2) 100,000(2) 100,000(2) 0 over 100,000
10,001 -
Gerald J. Levy......... 0 0 50,000 0 0 0 10,001 - 50,000
10,001 -
William A. McKenna..... 0 50,000 0 0 0 0 10,001 - 50,000
over
Christopher M. Owen.... 0 100,000(3) 0 0 0 0 over 100,000
Maria F. Ramirez....... 0 0 0 0 0 0 0
INTERESTED TRUSTEES
over
Rodger D. Shay......... 0 0 0 100,000 0 0 over 100,000
1 - over
Rodger D. Shay, Jr..... 10,000 100,000 0 0 0 0 over 100,000
<FN>
- --------------
(1) Mr. Amis had through an institution he serves as an officer shared voting
and investment power over 107,647.48 Class I shares of the Money Market Fund,
1,404,946.22 shares of the Ultra Short Mortgage Fund and 246,196.51 shares of
the Short U.S. Fund and disclaims beneficial ownership of those shares.
(2) As of December 31, 2004, Mr. Holland had through institutions he served as
an officer shared voting and investment power over 1,782,187.16 shares of the
Ultra Short Mortgage Fund, 1,754,791.06 shares of the Ultra Short Fund,
122,420.02 shares of the Short U.S. Fund and 371,956.96 shares of the
Intermediate Mortgage Fund. However, Mr. Holland has since retired as an officer
from those institutions and no longer has shared voting and investment power and
disclaims beneficial ownership of those shares.
(3) Mr. Owen had through an institution he serves as an officer shared voting
and investment power over 1,835,740.84 shares of the Ultra Short Mortgage Fund
and disclaims beneficial ownership of those shares.
</FN>
As of December 31, 2004, the officers and Trustees of the Trust as a
group directly owned less than 1% of the shares of each Fund (including each
class of the Money Market Fund). As of December 31, 2004, institutions owned by
Shay Investment Services, Inc., a closely held corporation majority owned by
Messrs. Shay and Shay, Jr., held 510,576.27 Class I shares of the Money Market
Fund, 581,362.02 shares of the Ultra Short Mortgage Fund, 76,721.43 shares of
the Ultra Short Fund and 14,319.07 shares of the Short U.S. Fund. Messrs. Shay
and Shay, Jr. do not have voting and/or investment power over those shares.
26
No Independent Trustee owns beneficially or of record, any security of
Shay Assets Management, Inc., Shay Financial Services, Inc., or Shay Investment
Services Inc. or any person (other than a registered investment company)
directly or indirectly controlling, controlled by or under common control with
Shay Assets Management, Inc., Shay Financial Services, Inc., or Shay Investment
Services Inc.
The following table provides certain information at February 1, 2005
with respect to persons known to the Trust to be beneficial and record owners
(having sole voting and dispositive power) of 5% or more of the shares of common
stock of the Funds:
PERCENT OF FUND'S
NUMBER OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER FUND SHARES COMMON SHARES
- -------------------------------------- --------------------- ------------- -----------------
Umpqua Bank
P.O. Box 1820 Intermediate Mortgage 4,076,001.587 13.20%
Roseburg, OR 97470 Fund
BankUnited FSB
7815 NW 148th Street Intermediate Mortgage 2,876,486.648 9.31%
Miami Lakes, FL 33016 Fund
Northwest Savings Bank
Second at Liberty Avenue Intermediate Mortgage 2,158,146.893 6.99%
P.O. Box 128 Fund
Warren, PA 16365
The Citizens Bank
500 West Broadway Intermediate Mortgage 2,048,663.512 6.63%
Farmington, NM 87401 Fund
First Carolina Corporate Credit Union
P.O. Box 49379 Intermediate Mortgage 2,048,131.616 6.63%
Attn: Fred Eisel Fund
Greensboro, NC 27419
Polonia Bank
Attn: Paul D. Rutkowski Intermediate Mortgage 1,832,120.560 5.93%
3993 Huntingdon Pike Fund
Huntingdon Valley, PA 19006
The Citizens Bank FBO
521 Main Street Money Market Fund 8,717,868.850 42.07%
Philadelphia, MS 39350 Class D Shares
BISYS Fund Services Inc.
FBO Total Plus Sweep Customers Money Market Fund 7,075,947.000 34.15%
3435 Stelzer Road Class D Shares
Columbus, OH 43219
Lincoln Bank
1121 East Main Street Money Market Fund 3,676,422.020 17.74%
Plainfield, IN 46168 Class D Shares
27
PERCENT OF FUND'S
NUMBER OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER FUND SHARES COMMON SHARES
- -------------------------------------- --------------------- ------------- -----------------
Mesirow Financial Inc.
350 North Clark Street Money Market Fund 7,095,485.460 21.23%
Chicago, IL 60610-4796 Class I Shares
Enfield Federal Savings & Loan
Attn: David J. O'Connor - President Money Market Fund 5,711,637.010 17.09%
P.O. Box 1279 Class I Shares
Enfield, CT 06083
Mercer Savings Bank
P.O. Box 227 T Money Market Fund 3,756,043.450 11.24%
Celina, OH 45822 Class I Shares
Community Bank Of Tri-County
P.O. Box 38 Money Market Fund 2,124,402.200 6.36%
Attn: David Vaira Class I Shares
Waldorf, MD 20604
Union Bank
P.O. Box 85484 Money Market Fund 2,000,476.000 5.98%
San Diego, CA 92186-5484 Class I Shares
Franklin Federal Savings and Loan
Association Short U.S. Government 1,497,436.906 10.69%
4501 Cox Road Fund
Glen Allen, VA 23060
Flushing Savings Bank FSB
144-51 Northern Blvd. Short U.S. Government 1,031,853.941 7.36%
Flushing, NY 11354 Fund
El Dorado Savings Bank
4040 El Dorado Road Short U.S. Government 936,680.768 6.68%
Placerville, CA 95667-8238 Fund
First Carolina Corporate Credit Union
P.O. Box 49379 Short U.S. Government 925,917.691 6.61%
Attn: Fred Eisel Fund
Greensboro, NC 27419
Canton Institution for Savings
Attn: John W. Wigmore Short U.S. Government 847,884.539 6.05%
P.O. Box 282 Fund
Canton, MA 02021
First Federal Savings & Loan
Association of Lincolnton Short U.S. Government 844,126.166 6.02%
320 E. Main Street Fund
Attn: CD Stroup Jr.
Lincolnton, NC 28092
28
PERCENT OF FUND'S
NUMBER OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER FUND SHARES COMMON SHARES
- -------------------------------------- --------------------- ------------- -----------------
First Keystone Federal
22 W. State Street Short U.S. Government 838,095.819 5.98%
Attn: Rose M. Dimarco Fund
Media, PA 19063
Eastern Federal Bank
257 Main Street Short U.S. Government 760,824.473 5.43%
P.O. Box 709 Fund
Attn: Treasurer
Norwich, CT 06360
Watertown Savings Bank
60 Main Street Ultra Short Fund 7,017,850.065 26.00%
Watertown, MA 02472
Florence Savings Bank
85 Main Street Ultra Short Fund 1,905,058.692 7.06%
Florence, MA 01062
BankUnited FSB
7815 NW 148th Street U.S. Government 3,477,289.065 21.49%
Miami Lakes, FL 33016 Mortgage Fund
Baltimore County Savings Bank
4111 E. Joppa Road, Suite 300 U.S. Government 2,008,710.259 12.41%
Baltimore, MD 21236 Mortgage Fund
First Federal Bank FSB
109 E. Depot U.S. Government 1,743,378.498 10.77%
P.O. Box 256 Mortgage Fund
Colchester, IL 62326
Canton Institution for Savings
Attn: John W. Wigmore U.S. Government 1,184,952.193 7.32%
P.O. Box 282 Mortgage Fund
Canton, MA 02021
Skowhegan Savings Bank
P.O. Box 250 U.S. Government 932,688.265 5.76%
Skowhegan, ME 04976 Mortgage Fund
BISYS Fund Services Inc., FBO Total Plus Sweep Customers, 3435 Stelzer
Rd., Columbus, OH 43219 is the holder of record only of the Money Market Fund
Class D shares listed above that are held for the benefit of Total Plus Sweep
Customers.
INVESTMENT ADVISER
The investment adviser of the Trust since December 8, 1997 is Shay
Assets Management, Inc. (the "Investment Adviser"), a Florida corporation, with
its principal office at 230 West Monroe Street, Suite 2810, Chicago, Illinois
60606. The Investment Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and is a wholly owned subsidiary of
Shay Investment
29
Services, Inc., a closely held corporation majority owned by Rodger D. Shay, who
is a member of the Board of Trustees and Chairman of the Board of Trustees, and
Rodger D. Shay, Jr., who is a member of the Board of Trustees. As a result of
the foregoing, Rodger D. Shay and Rodger D. Shay, Jr. are considered interested
persons of the Trust. The Investment Adviser also serves as sub-adviser to the
John Hancock Large Cap Select Fund, RSI Retirement Trust Actively Managed Bond
Fund, RSI Retirement Trust Intermediate-Term Bond Fund and RSI Retirement Trust
Value Equity Fund.
The Investment Advisory Agreement between the Funds (other than the
Ultra Short Fund) and the Investment Adviser (the "Advisory Agreement")
continues from year to year, subject to termination by the Fund or the
Investment Adviser as hereinafter provided, if such continuance is approved at
least annually by a majority of the outstanding shares (as defined under
"General Information" in this Statement of Additional Information) of each Fund
or by the Board of Trustees. The separate Investment Advisory Agreement between
the Ultra Short Fund and the Investment Adviser (the "Ultra Short Advisory
Agreement" and together with the Advisory Agreement, the "Advisory Agreements")
continues from year to year thereafter, in the same manner as the Advisory
Agreement subject to the continuation provisions described above. The Advisory
Agreements must also be approved annually by the vote of a majority of the
Trustees who are not parties to each Advisory Agreement or "interested persons"
of any party thereto. All Trustees' votes must be cast in person at a meeting
called for the purpose of voting on such approval.
The Advisory Agreements have been approved by the Board of Trustees,
including a majority of the Independent Trustees. The Board of Trustees,
including a majority of the Independent Trustees, determined that the Advisory
Agreements are in the best interests of the Trust. The Independent Trustees met
separately from the "interested" Trustees of the Trust and officers or employees
of the Investment Adviser or its affiliates to consider continuance of the
Advisory Agreements and were assisted by legal counsel in making their
determination.
In evaluating the Advisory Agreements, the Board of Trustees reviewed
materials furnished by the Investment Adviser, including information regarding:
(1) the nature, extent and quality of the services provided to the Funds,
including information on both the short-term and long-term investment
performance of each Fund and comparisons to a peer group of funds and an
appropriate index, as well as information regarding the personnel involved in
the investment process; (2) the advisory fees charged and total expense ratios
of the Funds compared to a peer group of funds; and (3) the Investment Adviser's
financial condition and the profitability to the Investment Adviser of its
relationship with the Funds.
In considering the Advisory Agreements, the Board of Trustees
considered, among other factors, the services provided by the Investment
Adviser, the Funds' fees and expense ratios as compared to similar funds, fees
waived by the Investment Adviser, breakpoints in the Investment Adviser's fees
and economies of scale. The Board of Trustees, including the Independent
Trustees, did not identify any single factor or group of factors as
all-important or controlling, but considered all factors together. Based upon
its evaluation of all material factors, the Board of Trustees, including a
majority of the Independent Trustees, determined that continuation of the
Advisory Agreements will enable the Trust to continue to obtain high quality
investment management services at a reasonable cost and determined that the
Advisory Agreements should be approved for continuance.
As compensation for the services rendered by the Investment Adviser
under the Advisory Agreement, the Money Market Fund pays the Investment Adviser
a fee, payable monthly, computed as follows with respect to the Money Market
Fund: 0.15% per annum of the average daily net assets of the Fund up to and
including $500 million; 0.125% per annum of the next $500 million of such net
assets; and 0.10% per annum of such net assets over $1 billion. The Advisory
Agreement provides that in the event the daily ratio of Expenses (as defined in
the Advisory Agreement) to daily net assets with respect to the Fund on any day
exceeds 0.75% (such expenses hereinafter called the "Excess Expense" of the
30
Fund), the compensation due to the Investment Adviser for that day shall be
reduced, but not below zero, by an amount equal to the Excess Expense of such
Fund. The Investment Adviser may supplementally waive advisory fees in an amount
up to but not to exceed 0.15% of the average daily net assets of the Fund.
Effective June 25, 2003, the Investment Adviser is voluntarily waiving its
entire fee. This voluntary waiver agreement may be terminated at any time by the
Investment Adviser.
As compensation for the services rendered by the Investment Adviser
under the Advisory Agreement, the Ultra Short Mortgage Fund pays the Investment
Adviser a fee, payable monthly, based on an annual percentage of the average
daily net assets of the Fund as follows: 0.45% on the first $3 billion; 0.35% of
the next $2 billion and 0.25% in excess of $5 billion. The Investment Adviser
may voluntarily elect to waive its advisory fees in an amount up to but not to
exceed 0.45% of the average daily net assets of the Fund. For the fiscal year
ended October 31, 2004, the Investment Adviser voluntarily waived 0.18% of its
fee so that the Fund paid the Investment Adviser a fee of 0.25% of its average
daily net assets. The Investment Adviser is expected to continue voluntarily
waiving a portion of its fee so that the Fund pays a management fee of 0.25% of
its average daily net assets, but this voluntary waiver agreement may be
terminated at any time by the Investment Adviser.
As compensation for the services rendered by the Investment Adviser
under the Ultra Short Advisory Agreement, the Ultra Short Fund pays the
Investment Adviser a fee, payable monthly, equal to 0.45% per annum of the
average daily net assets of the Fund; provided, however, that the Investment
Adviser is currently voluntarily waiving 0.20% of its fee so that the Fund pays
a management fee of 0.25% of its average daily net assets. The voluntary waiver
may be terminated at any time by the Investment Adviser.
As compensation for the services rendered by the Investment Adviser
under the Advisory Agreement, each of the Short U.S. Government Fund and the
U.S. Government Mortgage Fund pays the Investment Adviser a fee, payable
monthly, computed as follows: 0.25% per annum of the average daily net assets of
the Fund up to and including $500 million; 0.175% per annum of the next $500
million of such net assets; 0.125% per annum of the next $500 million of such
assets; and 0.10% per annum of such net assets over $1.5 billion. The Advisory
Agreement provides that in the event the daily ratio of Expenses (as defined in
the Agreement) to daily net assets with respect to a Fund on any day exceeds
0.75% (such expenses hereinafter called the "Excess Expense" of such Fund), the
compensation due to the Investment Adviser for that day shall be reduced, but
not below zero, by an amount equal to the Excess Expense of such Fund.
As compensation for the services rendered by the Investment Adviser
under the Advisory Agreement, the Intermediate Mortgage Fund pays the Investment
Adviser a fee, payable monthly at the rate of 0.35% per annum of the average
daily net assets of the Fund up to and including $500 million; 0.275% per annum
of the next $500 million of such net assets; 0.20% per annum of the next $500
million of such net assets; and 0.10% per annum of such net assets over $1.5
billion. The Advisory Agreement provides that in the event the daily ratio of
Expenses (as defined in the Agreement) to daily net assets with respect to a
Fund on any day exceeds 0.75% (such expenses hereinafter called the "Excess
Expense" of such Fund), the compensation due to the Investment Adviser for that
day shall be reduced but not below zero, by an amount equal to the Excess
Expense of such Fund. The Investment Adviser may voluntarily elect to waive its
fees in an amount up to but not to exceed 0.35% of the average daily net assets
of the Fund. The Investment Adviser is currently voluntarily waiving 0.10% of
its fee so that the Fund pays a management fee of 0.25% of its average daily net
assets. This voluntary waiver agreement may be terminated at any time by the
Investment Adviser.
31
INVESTMENT ADVISORY FEES PAID
FISCAL YEAR ENDED OCTOBER 31
---------------------------------------------
FUND 2004 2003 2002
- ------------------------------- --------- ---------- ----------
Money Market................... $0 $47,496 $87,808
Ultra Short Mortgage........... 9,576,505 11,209,186 6,717,820
Ultra Short.................... 705,109 699,600 534,761
Short U.S. Government.......... 460,905 525,010 450,870
Intermediate Mortgage.......... 774,960 851,865 541,448
U.S. Government Mortgage....... 451,487 421,331 251,098
INVESTMENT ADVISORY FEES WAIVED
FISCAL YEAR ENDED OCTOBER 31
---------------------------------------------
FUND 2004 2003 2002
- ------------------------------- --------- --------- ---------
Money Market................... $84,928 $34,301 $0
Ultra Short Mortgage........... 6,790,692 7,441,857 5,374,315
Ultra Short.................... 564,089 559,685 427,382
Intermediate Mortgage.......... 309,980 340,743 216,577
The Investment Adviser may from time to time enter into arrangements
with entities such as trade associations and affinity groups ("organizations")
whereby the Investment Adviser agrees to pay such an organization a portion of
the management fees received by the Investment Adviser with respect to assets
invested in the Funds by members of the organization for certain services or
products (such as use of logos or membership lists, bundling with or placement
of articles in newsletters or other organization publications, directory
listings, and space at trade shows) provided by the organization.
The Advisory Agreements provide that the Investment Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by any Fund in connection with the matters to which the Advisory Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the Advisory Agreements.
The Advisory Agreements will terminate automatically upon assignment
and are terminable with respect to a Fund at any time without penalty by the
Board of Trustees or by a vote of a majority of the outstanding shares (as
defined under "General Information" in this Statement of Additional Information)
of the Fund on 60 days' written notice to the Investment Adviser, or by the
Investment Adviser on 90 days' written notice to the Fund.
PORTFOLIO MANAGERS
The portfolio managers of the Investment Adviser manage the Funds'
investments as a team. The portfolio managers responsible for the day-to-day
management of the Funds' investments are Richard Blackburn, Kevin T. Blaser, Jon
P. Denfeld, David Petrosinelli, Edward E. Sammons, Jr. and Rodger D. Shay, Jr.
The Investment Adviser currently only manages accounts of registered investment
companies. As of October 31, 2004, the portfolio managers managed no accounts
other than the Funds.
Investment decisions for each Fund are made independently from those
for the other Funds and other accounts advised by the Investment Adviser. It may
happen, on occasion, that the same security is held in one Fund and in another
Fund or in another account advised by the Investment Adviser. Simultaneous
transactions are likely when several portfolios are advised by the same
investment adviser, particularly when a security is suitable for the investment
objectives of more than one of such accounts.
32
When two or more Funds or accounts advised by the Investment Adviser are
simultaneously engaged in the purchase or sale of the same security, the
transactions are allocated to the respective Funds or accounts, both as to
amount and price, in accordance with a method deemed equitable to each Fund or
account. In some cases, this system may adversely affect the price paid or
received by a Fund or the size of the security position obtainable for such
Fund.
The compensation of the portfolio managers who were portfolio managers
as of October 31, 2004 consists of a base salary which is typically augmented by
semi-annual subjective bonus payments based on periods ended June 30th and
December 31st. During cycles of rapidly rising assets under management,
aggregate annual bonus compensation may exceed base salary compensation. In
periods of rapidly declining assets under management, the opposite may be true.
Bonus incentives can also be affected by long term risk-adjusted return
performance.
The following table sets forth the dollar range of equity securities
beneficially owned by each portfolio manager as of October 31, 2004:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUNDS
- ---------------------------------------------------------------------------------------------------------------------
ULTRA
MONEY SHORT ULTRA SHORT U.S.
MARKET MORTGAGE SHORT U.S. INTERMEDIATE GOVERNMENT
PORTFOLIO MANAGER(1) FUND FUND FUND FUND MORTGAGE FUND MORTGAGE FUND
- ----------------------- ------ -------- ----- ----- ------------- -------------
Richard Blackburn...... $0 $0 $0 $0 $0 $0
Kevin T. Blaser........ 0 0 0 0 0 0
Jon P. Denfeld......... 0 0 0 10,001-50,000 0 1-10,000
David Petrosinelli..... 0 0 0 0 0 0
over
Edward E. Sammons...... 0 0 0 100,000 0 0
<FN>
- --------------
(1) Mr. Shay, Jr. was not a portfolio manager as of October 31, 2004. He became
a portfolio manager in 2005.
</FN>
DISTRIBUTOR
Shay Financial Services, Inc. is a registered broker-dealer and the
Funds' principal distributor (the "Distributor"). The Distributor, a Florida
corporation, is a wholly owned subsidiary of Shay Investment Services, Inc.,
which is a closely held corporation majority owned by Rodger D. Shay, who is a
member of the Board of Trustees and Chairman of the Board of Trustees, and
Rodger D. Shay, Jr., who is a member of the Board of Trustees and President of
the Distributor. The Distributor is located at 230 W. Monroe Street, Suite 2810,
Chicago, Illinois 60606-4902.
As compensation for distribution services with regard to the Class I
Shares of the Money Market Fund and the Short U.S. Government Fund, the Trust
pays the Distributor a fee, payable monthly, with respect to those Funds at the
rate of 0.15% per annum of the combined average daily net assets of both Funds
up to and including $500 million; plus 0.125% per annum of the next $500 million
of such combined net assets; plus 0.10% per annum of the next $1 billion of such
combined net assets; plus 0.075% per annum of such combined net assets over $2
billion. This fee is allocated between the two Funds based on their relative
average net assets. The Distributor waived its entire fee for the Class I Shares
of the Money Market Fund for the fiscal year ended October 31, 2004. Effective
November 1, 2004, the Distributor is voluntarily waiving 0.10% of its fee with
respect to the Class I Shares of the Money Market Fund so that the Fund pays the
Distributor a fee of 0.05% of the Fund's average daily net
33
assets of the Class I Shares of the Money Market Fund. This voluntary waiver
agreement may be terminated at any time by the Distributor. As compensation for
distribution services with regard to the Class D Shares of the Money Market
Fund, the Trust pays the Distributor a fee, payable monthly, with respect to the
Class D Shares at the rate of 0.60% per annum of the daily net assets of the
Class D Shares. The Distributor is currently voluntarily waiving a portion of
its fee so that Total Fund Operating Expenses of Class D Shares of the Money
Market Fund do not exceed 0.75% of average daily net assets. This voluntary
waiver may be terminated at any time by the Distributor.
As compensation for distribution services, the Ultra Short Mortgage
Fund pays the Distributor a fee, payable monthly at the rate of 0.25% per annum
of the average daily net assets of the Fund. The Distributor may voluntarily
elect to waive its 12b-1 fees in an amount up to but not to exceed 0.25% of the
average daily net assets of the Fund. The Distributor is currently voluntarily
waiving 0.10% of its fee so that the Fund pays the Distributor a fee of 0.15% of
the Fund's average daily net assets. This voluntary waiver agreement may be
terminated at any time by the Distributor.
As compensation for distribution services, the Ultra Short Fund pays
the Distributor a fee, payable monthly, with respect to the Fund at the rate of
0.25% per annum of the average daily net assets of the Fund. The Distributor may
voluntarily elect to waive its fees in an amount up to but not to exceed 0.25%
of the average daily net assets of the Fund. The Distributor is currently
voluntarily waiving 0.10% of its fee so that the Fund pays the Distributor a fee
of 0.15% of the Fund's average daily net assets. The voluntary waiver may be
terminated by the Distributor at any time.
As compensation for distribution services, each of the Intermediate
Mortgage Fund and the U.S. Government Mortgage Fund pays the Distributor a fee,
payable monthly, at the rate of 0.15% per annum of the average daily net assets
of each Fund up to and including $500 million; 0.125% per annum of the next $500
million of such net assets; 0.10% per annum of the next $500 million of such net
assets; and 0.075% per annum of such net assets over $1.5 billion.
DISTRIBUTION FEES PAID
FISCAL YEAR ENDED OCTOBER 31
---------------------------------------------
FUND 2004 2003 2002
- ----------------------------- --------- --------- ---------
Money Market................. $102,608 $100,287 $50,606
Ultra Short Mortgage......... 5,745,950 6,725,544 4,030,712
Ultra Short.................. 423,069 419,762 320,858
Short U.S. Government........ 276,545 315,008 270,523
Intermediate Mortgage........ 464,980 511,121 324,870
U.S. Government Mortgage..... 270,895 252,800 150,659
DISTRIBUTION FEES WAIVED
FISCAL YEAR ENDED OCTOBER 31
---------------------------------------------
FUND 2004 2003 2002
- ----------------------------- --------- --------- ---------
Money Market................. $74,667 $72,123 $84,276
Ultra Short Mortgage......... 3,830,560 4,483,642 2,687,108
Ultra Short.................. 282,040 279,838 213,666
The Distributor is obligated under the Distribution Agreement to bear
the costs and expenses of printing and distributing copies of prospectuses and
annual and interim reports of the Trust (after such items have been prepared and
set in type) that are used in connection with the offering of shares of the
Trust to investors, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor in connection with the
offering of the shares of the Funds for sale to investors.
34
The Trust has been informed by the Distributor that during its fiscal
year ended October 31, 2004, of the fees received by the Distributor with
respect to the Funds, the following expenditures were made:
EMPLOYEE STAFF OTHER
COMPENSATION & TRAVEL & ADMINISTRATIVE
FUND ADVERTISING PRINTING COSTS EXPENSE EXPENSE
- ------------------------------- ----------- -------- -------------- -------- --------------
Money Market................... $938 $484 $30,488 $2,961 $8,785
Ultra Short Mortgage........... 64,346 33,341 2,057,721 200,876 582,753
Ultra Short.................... 4,644 2,392 151,629 14,702 43,918
Short U.S. Government.......... 3,120 1,619 99,149 9,699 27,883
Intermediate Mortgage.......... 5,170 2,672 166,770 16,234 47,680
U.S. Government Mortgage....... 3,025 1,565 97,136 9,469 27,637
Shay Financial Services, Inc., the Funds' Distributor, and its
affiliated persons, including Rodger D. Shay, who is a member of the Board of
Trustees and Chairman of the Board of Trustees, Rodger D. Shay, Jr., who is a
member of the Board of Trustees, Edward E. Sammons Jr., who is President of the
Trust, Robert T. Podraza, who is Vice President and Assistant Treasurer of the
Trust, and Daniel K. Ellenwood, who is Secretary of the Trust, have a direct or
indirect financial interest in the operation of the Funds' Rule 12b-1 Plan and
related Distribution Agreement. None of the Trustees who are not interested
persons of the Trust have any direct or indirect financial interest in the
operation of the Funds' Rule 12b-1 Plan and related Distribution Agreement.
The Trust has appointed the Distributor to act as the principal
distributor of the Fund's continuous offering of shares pursuant to a
Distribution Agreement dated December 8, 1997 between the Trust and the
Distributor (the "Distribution Agreement"). The initial term of the Distribution
Agreement was completed as of March 1, 1999, and now continues in effect from
year to year thereafter, subject to termination by the Trust or the Distributor
as hereinafter provided, if approved at least annually by the Board of Trustees
and by a majority of the Trustees who are not "interested persons" of the Trust
and have no direct or indirect financial interest in the arrangements
contemplated by the agreement. In approving the Rule 12b-1 Plan, the Board of
Trustees concluded in accordance with the requirements of Rule 12b-1 under the
1940 Act that there is a reasonable likelihood that the Rule 12b-1 Plan will
benefit each Fund and its shareholders.
The Trust's Rule 12b-1 Plan requires the Board of Trustees to make a
quarterly review of the amount expended under the Rule 12b-1 Plan and the
purposes for which such expenditures were made. The Rule 12b-1 Plan may not be
amended to increase materially the amount paid by a Fund thereunder without
shareholder approval. All material amendments to the Rule 12b-1 Plan must be
approved by the Board of Trustees and by the "disinterested" Trustees referred
to above. The Rule 12b-1 Plan will terminate automatically upon its assignment
and is terminable at any time without penalty by a majority of the Trustees who
are "disinterested" as described above or by a vote of a majority of the
outstanding shares (as defined under "General Information" in this Statement of
Additional Information) of each Fund on 60 days' written notice to the
Distributor, or by the Distributor on 90 days' written notice to the Trust.
Although the Distributor's fee is calculable separately with respect to each
Fund and the Distributor reports expense information to the Trust on a
Fund-by-Fund basis, any 12b-1 fee received by the Distributor in excess of
expenses for a given Fund may be used for any purpose, including payment of
expenses incurred in distributing shares of another Fund, to compensate another
dealer for distribution assistance or payment of the Distributor's overhead
expenses.
The Investment Adviser or Distributor, out of its own resources and
without additional costs to the Funds or their shareholders, may provide
additional cash payments or non-cash compensation to intermediaries who sell
shares of the Funds in recognition of their marketing, transaction processing
and/or administrative services support.
35
The Trust, the Investment Adviser and the Distributor have adopted
codes of ethics under Rule 17j-1 under the 1940 Act. Board members and officers
of the Trust and employees of the Investment Adviser and Distributor are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Funds, subject to requirements
and restrictions set forth in the codes of ethics. The codes of ethics contain
provisions and requirements designed to identify and address certain conflicts
of interest between personal investment activities and the interests of the
Funds. Portfolio managers, traders, research analysts and others involved in the
investment advisory process are subject to special standards. Among other
things, the codes of ethics prohibit certain types of transactions absent prior
approval, impose time periods during which personal transactions may not be made
in certain securities, and require the submission of quarterly reporting of
securities transactions. Exceptions to these and other provisions of the codes
of ethics may be granted in particular circumstances after review by appropriate
personnel.
It is not anticipated that the Funds will invest in voting securities.
In the event a Fund invests in voting securities, the Trust has delegated to the
Investment Adviser the responsibility for voting the proxies related to such
securities, subject to the Board of Trustee's oversight. It is the Investment
Adviser's policy to vote proxies in a manner that is most economically
beneficial to the Fund. When a vote presents a conflict between the interests of
Fund shareholders and the interests of the Investment Adviser or Distributor, a
special internal review by the Investment Adviser's Executive Committee
determines the vote. Information regarding how the Funds voted proxies relating
to portfolio securities during the most recent 12-month period ended June 30 is
available without charge, upon request, by calling 1-800-527-3713 or on the
SEC's website at http://www.sec.gov.
FUND SERVICES
BISYS Fund Services Ohio, Inc. ("BISYS"), 3435 Stelzer Road, Columbus,
Ohio 43219, an Ohio corporation, is the Trust's current administrative agent
(the "Administrator") with respect to each Fund. Pursuant to the terms of the
administration agreement between the Trust and BISYS (the "Administration
Agreement"), BISYS performs various administrative services for the Funds,
including (i) assisting in supervising all aspects of the Funds' operations
other than those assumed by the Investment Adviser, Distributor, custodian, fund
accountant and transfer and dividend agent, (ii) providing each Fund with the
services of persons competent to perform such administrative and clerical
functions as are necessary in order to provide effective administration of the
Funds, (iii) maintaining each Fund's books and records, and (iv) preparing
various filings, reports, statements and returns filed with governmental
authorities or distributed to shareholders of each Fund.
In addition, BISYS is the transfer and dividend agent for the Funds'
shares. Pursuant to the terms of the transfer agency agreement between the Trust
and BISYS (the "Transfer Agency Agreement"), BISYS provides various transfer
agency services to the Funds, including (i) processing shareholder purchase and
redemption requests, (ii) processing dividend payments and (iii) maintaining
shareholder account records.
BISYS also serves as the fund accountant for the Trust. Pursuant to the
terms of the fund accounting agreement between the Trust and BISYS (the "Fund
Accounting Agreement"), BISYS provides various fund accounting services to the
Funds, which include (i) computing each Fund's net asset value for purposes of
the sale and redemption of its shares, (ii) computing each Fund's dividend
payables, (iii) preparing certain periodic reports and statements, and (iv)
maintaining the general ledger accounting records for each Fund.
As compensation for the services rendered by BISYS under the
Administration Agreement, Transfer Agency Agreement and Fund Accounting
Agreement, the Trust pays BISYS a single fee, computed daily and payable
monthly, with respect to each Fund at the rate of 0.03% per annum of the
36
Fund's average daily net assets up to and including $1 billion; 0.02% per annum
of the next $1 billion of average daily net assets; and 0.01% per annum of each
Fund's average daily net assets over $2 billion, with a minimum annual fee of
$393,200 for all the Trust's six series taken together. If applicable, the
minimum fee is allocated among the Trust's six series based on relative average
daily net assets. Certain out of pocket expenses and miscellaneous service fees
and charges are not included in the fee rates and minimum annual fee described
above. BISYS is also entitled to receive a $15.00 per account per Fund annual
processing fee.
FUND SERVICES FEES PAID (FEES WAIVED)
FISCAL YEAR ENDED OCTOBER 31
-------------------------------------------
FUND 2004 2003 2002
- --------------------------------- ------- ------- ---------------
Money Market..................... $21,335 $19,177 $22,993
Ultra Short Mortgage............. 761,673 830,983 620,069
Ultra Short...................... 93,504 96,618 62,919 (10,840)
Short U.S. Government............ 58,794 65,534 58,614
Intermediate Mortgage............ 96,716 106,092 67,971
U.S. Government Mortgage......... 55,965 52,450 31,843
The Trust has also entered into a compliance services agreement with
BISYS (the "Compliance Services Agreement"). Pursuant to the terms of the
agreement, BISYS makes available an individual to serve as the Trust's chief
compliance officer. The chief compliance officer is responsible for
administering the Trust's compliance policies and procedures and annually
reviewing the compliance policies and procedures of the Trust and the Trust's
service providers in accordance with Rule 38a-1 under the 1940 Act. As
compensation for the services rendered by BISYS under the Compliance Services
Agreement, the Trust pays BISYS an annual fee of $100,000.
CUSTODIAN
The Bank of New York, 100 Church Street, 10th Floor, New York, New York
10286, a Maryland corporation, is the custodian of the Funds' investments.
DETERMINATION OF NET ASSET VALUE
With respect to the Money Market Fund, the Trust relies on an exemptive
rule (Rule 2a-7 under the 1940 Act) promulgated by the Securities and Exchange
Commission permitting the Fund to use the amortized cost procedure in valuing
the Money Market Fund's investments. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
The Board of Trustees has determined that, absent unusual circumstances, the
amortized cost method of valuation will fairly reflect the value of each
shareholder's interest. As a condition to the use of the amortized cost method
of valuation pursuant to such exemptive rule, the Money Market Fund is required
to maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase instruments having remaining maturities of 397 days or less only, and
invest only in securities determined by the Board of Trustees to be of eligible
quality with minimal credit risks. (See rating requirements under "The Funds'
Objectives and Investment Policies--FDIC Insured Institutions" in this Statement
of Additional Information.) An instrument which has a variable or floating rate
of interest may be deemed under certain circumstances to have a maturity equal
to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.
37
The Board of Trustees has established procedures reasonably designed,
taking into account current market conditions and the Fund's investment
objective, to stabilize the price per share of shares of the Money Market Fund
as computed for the purpose of distribution and redemption at $1.00. Such
procedures include review by the Board of Trustees, as it may deem appropriate
and at such intervals as are reasonable in light of current market conditions,
of the deviation between the net asset value per share calculated by using
available indications of market value and the net asset value per share using
amortized cost values. The Investment Adviser has been delegated the authority
to determine the market values of the securities held by the Fund through use of
its matrix pricing system, provided that any changes in the methods used to
determine market values are reported to and reviewed by the Board of Trustees.
The extent of any deviation between the net asset value per share of
the Money Market Fund based upon available market quotations or market
equivalents and $1.00 per share based on amortized cost will be examined by the
Board of Trustees. If such deviation exceeds 1/2 of 1%, the Board of Trustees
will promptly consider what action, if any, will be initiated. In the event the
Board of Trustees determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, it shall
take such corrective action as it deems appropriate to eliminate or reduce to
the extent reasonably practicable such dilution or unfair results, including the
sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends or
payment of distributions from capital or capital gains, redemptions of shares in
kind, or establishing a net asset value per share by using available market
quotations.
For purposes of determining the net asset value per share of each other
Fund, investments will generally be valued at prices obtained from an
independent pricing service or, for certain securities, the Board of Trustees
has approved the daily use of a matrix pricing system developed by the
Investment Adviser that the Board believes reflects the fair value of such
securities. Due to the subjective and variable nature of fair value pricing, it
is possible that the fair value determined for a particular security may be
materially different from the value realized upon such security's sale.
Short-term instruments maturing within 60 days of the valuation date may be
valued based upon their amortized cost.
FEDERAL INCOME TAXES
The following discussion is not intended to be a full discussion of
federal income tax laws and their effect on shareholders. Investors should
consult their own tax advisors as to the tax consequences of ownership of
shares.
Each of the Fund's portfolios is treated as a separate entity for
federal income tax purposes, and thus the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable to regulated
investment companies are applied to each Fund separately, rather than to the
Trust as a whole. In addition, net long-term and short-term capital gains and
losses, net investment income, and operating expenses are determined separately
for each Fund.
Each Fund has qualified and intends to continue to qualify as a
regulated investment company under Subchapter M of the Code. In order to so
qualify, each Fund must, among other things: (a) diversify its holdings so that
generally, at the end of each quarter of the taxable year, (i) at least 50% of
the value of its total assets is represented by cash and cash items, government
securities and other securities with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the value of the Fund's
total assets and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than government securities); and (b)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities, and other income derived with respect to its business of
investing in stock or securities. If a Fund qualifies as a regulated investment
company, it will not be subject to federal income tax on its net
38
investment income and net capital gains distributed to shareholders, provided at
least 90% of its investment company taxable income earned in the taxable year
(computed without regard to the deduction for dividends paid) is so distributed.
Dividends of the Money Market Fund's net investment income (which
generally includes income net of operating expenses), and distributions of net
short-term capital gains are taxable to shareholders as ordinary income whether
reinvested in shares or paid in cash.
Dividends of each Fund's (other than the Money Market Fund which is
described above) net investment income (which generally includes income other
than net capital gains, net of operating expenses), and distributions of net
short-term capital gains (i.e., the excess of net short-term capital gains over
net long-term capital losses) are taxable to shareholders as ordinary income
whether reinvested in shares or paid in cash. Distributions of net long-term
capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses) are taxable to shareholders as long-term capital
gains, regardless of how long shares of the Fund have been held, whether
reinvested in shares or paid in cash. Under the Code, net long-term capital
gains received by corporate shareholders (including long-term capital gain
distributions by a Fund) are taxed at the same rates as ordinary income. Net
long-term capital gains received by individual and other non-corporate
shareholders (including long-term capital gain distributions by a Fund) are
generally taxed at a maximum rate of 15%.
Because no portion of the income of any Fund will consist of dividends
from domestic corporations, dividends paid by the Funds are not expected to be
treated as "qualified dividend income," eligible for reduced rates of federal
income taxation when received by non-corporate shareholders, and will not
qualify for the "dividends received" deduction available to corporate
shareholders.
For federal income tax purposes at October 31, 2004, the Money Market
Fund had a capital loss carryforward of $14,744, which expires in 2008. The
Ultra Short Mortgage Fund had a capital loss carryforward of $69,092,890, of
which $1,301,928 expires in 2006, $4,959,047 expires in 2007, $1,824,665 expires
in 2008, $2,995,058 expires in 2010, $33,378,700 expires in 2011 and $24,633,492
expires in 2012. The Ultra Short Fund had a capital loss carryforward of
$4,807,712, of which $1,342,312 expires in 2010, $1,849,300 expires in 2011 and
$1,616,100 expires in 2012. The Short U.S. Government Fund had a capital loss
carryforward of $1,966,497, of which $642,561 expires in 2007, $1,193,651
expires in 2008 and $130,285 expires in 2011. The Intermediate Mortgage Fund had
a capital loss carryforward of $8,434,704, of which $817,175 expires in 2007,
$2,029,049 expires in 2008, $312,894 expires in 2010, $3,013,622 expires in 2011
and $2,261,964 expires in 2012. The U.S. Government Fund had a capital loss
carryforward of $7,916,501, of which $124,825 expires in 2005, $802,809 expires
in 2007, $2,276,740 expires in 2008, $181,530 expires in 2010, $1,808,782
expires in 2011 and $2,721,815 expires in 2012. All capital loss carryforwards
of a Fund are available to offset future realized capital gains, if any, of such
Fund.
Gain or loss realized upon a sale or redemption of shares of each Fund
by a shareholder who is not a dealer in securities will generally be treated as
long-term capital gain or loss if the shares have been held for more than one
year and, if not held for such period, as short-term capital gain or loss. Any
loss realized by a shareholder upon the sale of a Fund's shares held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.
A dividend or distribution received shortly after the purchase of
shares reduces the net asset value of the shares by the amount of the dividend
or distribution and, although in effect a return of capital, will be taxable to
the shareholder. If the net asset value of shares were reduced below the
shareholder's cost by dividends or distributions representing gains realized on
sales of securities, such dividends or
39
distributions would be a return of investment though taxable to the shareholder
in the same manner as other dividends or distributions.
Investments of a Fund in securities issued at a discount (or treated as
if issued at a discount) or providing for deferred interest or payment of
interest in kind are subject to special tax rules that will affect the amount,
timing and character of distributions to shareholders of such Fund.
A Fund's transactions in forward contracts, options, futures contracts
and hedged investments may be subject to special provisions of the Code that,
among other things, may affect the character of gain and loss realized by such
Fund (i.e., affect whether gain or loss is ordinary or capital), accelerate
recognition of income to such Fund, defer such Fund's losses, and affect whether
capital gain and loss is characterized as long-term or short-term. These rules
could therefore affect the character, amount and timing of distributions to
shareholders of such Fund. These provisions may also require a Fund to
mark-to-market certain types of the positions in its portfolio (i.e., treat them
as if they were closed out), which may cause that Fund to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes. Each
Fund will monitor its transactions in such investments, if any, make the
appropriate tax elections, and make the appropriate entries in its books and
records when it acquires any option, futures contract, forward contract, or
hedged investment in order to mitigate the effect of these rules, prevent
disqualification of such Fund as a regulated investment company, and minimize
the imposition of income and excise taxes.
Each Fund generally will be subject to a 4% nondeductible excise tax to
the extent the Fund does not meet certain minimum distribution requirements by
the end of each calendar year. To avoid the imposition of the 4% excise tax, it
may be necessary for a dividend to be declared in October, November or December
and actually paid in January of the following year, which will be treated as
having been received by shareholders on December 31 of the calendar year in
which declared. Under this rule, therefore, a shareholder may be taxed in one
year on dividends or distributions actually received in January of the following
year.
A Fund may be required to withhold, for U.S. federal income tax
purposes, a portion of all taxable distributions payable to shareholders who
fail to provide such Fund with their correct taxpayer identification number or
who fail to make required certifications or if the Fund or the shareholder has
been notified by the IRS that the shareholder is subject to backup withholding.
Certain corporate and other shareholders specified in the Code and the
regulations thereunder are exempt from 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 provided the appropriate
information is furnished to the IRS.
Foreign shareholders, including shareholders who are nonresident
aliens, may be subject to U.S. withholding tax on certain distributions at a
rate of 30% or such lower rates as may be prescribed by any applicable treaty.
Recently enacted legislation, however, modifies the tax treatment of certain
dividends paid by a Fund to non-U.S. persons. Effective for taxable years of a
Fund beginning after December 31, 2004 and before January 1, 2008, a Fund will
generally not be required to withhold tax on any amounts paid to a non-U.S.
person with respect to dividends attributable to "qualified short-term gain"
(i.e., the excess of short-term capital gain over net long-term capital loss)
designated as such by the Fund and dividends attributable to certain U.S. source
interest income that would not be subject to federal withholding tax if earned
directly by a non-U.S. person, provided such amounts are properly designated by
the Fund.
Although the Ultra Short Fund may invest in municipal bonds, it is not
anticipated that any of the Funds will qualify to pay exempt-interest dividends,
which are not subject to the regular federal income
40
tax, since no Fund is expected to meet the requirement that it have, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets consist of tax-exempt obligations.
Investors are advised to consult their own tax advisors with respect to
the application to their own circumstances of the above-described general
federal income taxation rules and with respect to other federal, state, local or
foreign tax consequences to them of an investment in shares of a Fund.
FUND TRANSACTIONS
Purchases and sales of securities for each Fund usually are principal
transactions. Securities normally are purchased directly from the issuer or from
an underwriter or market maker for the securities. There usually, but not
always, are no brokerage commissions paid by the Fund for such purchases, and
during the fiscal years ended October 31, 2004, 2003 and 2002, none of the Funds
paid any brokerage commissions. Purchases from dealers serving as market makers
may include the spread between the bid and asked prices. The Investment Adviser
attempts to obtain the best price and execution for portfolio transactions.
Each Fund will not purchase securities from, sell securities to, or
enter into repurchase agreements with, the Investment Adviser or any of its
affiliates.
Allocation of transactions, including their frequency, to various
dealers is determined by the Investment Adviser in its best judgment under the
general supervision of the Board of Trustees and in a manner deemed fair and
reasonable to shareholders. Pursuant to the Investment Adviser's Best Execution
Policies and Procedures, the Investment Adviser seeks to obtain "best execution"
for the Funds' securities transactions. In seeking to obtain "best execution,"
the Investment Adviser considers the range and quality of the broker-dealer's
services. On occasion the Investment Adviser on behalf of each Fund may effect
securities transactions on an agency basis with broker-dealers providing
research services and/or research-related products for the Fund. Research
services or research-related products may include information in the form of
written reports, reports accessed by computers or terminals, statistical
collations and appraisals and analysis relating to companies or industries.
However, in selecting such broker-dealers, the Investment Adviser adheres to the
primary consideration of "best execution."
DISCLOSURE OF INFORMATION REGARDING PORTFOLIO HOLDINGS
Information about each Fund's portfolio holdings and other portfolio
characteristics is provided to the Administrator, the Distributor and other
service providers to enable such service providers to carry out their
responsibilities to the Fund.
In accordance with industry practice, a list of each Fund's portfolio
holdings and other information about each Fund's portfolio characteristics is
provided to mutual fund rating agencies and companies that collect and maintain
information about mutual funds. This information is produced on a weekly,
monthly and quarterly basis and made available as soon as possible.
Information about a Fund's portfolio characteristics is disclosed on a
monthly and quarterly basis to shareholders and prospective shareholders of the
Fund that are regulated entities and by law or business practices are required
to receive this information. The information is provided no sooner than 10 days
after the month- or quarter-end.
General performance or statistical information about a Fund may be
disclosed to shareholders, prospective shareholders and intermediaries that
distribute shares of the Fund as soon as practicable. Summaries of a Fund's
performance and historical sector allocation may be provided to shareholders,
prospective shareholders and intermediaries that distribute shares of the Fund
on a quarterly basis no sooner than 10 days after the quarter-end.
41
Information about a Fund's portfolio holdings and characteristics may
be disclosed in other circumstances if the Chief Compliance Officer and
President of the Investment Adviser and the Compliance Officer of the
Distributor determine that such disclosure is appropriate.
Each Fund also discloses information about its portfolio holdings to
the extent required by law or regulation.
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust consists of an unlimited number of shares of beneficial
interest divided into six Funds: the Money Market Fund, the Ultra Short Mortgage
Fund, the Ultra Short Fund, the Short U.S. Government Fund, the Intermediate
Mortgage Fund, and the U.S. Government Mortgage Fund. Shares of the Money Market
Fund are issued in two classes: D shares and I shares. The shares of each Fund
represent interests only in the corresponding Fund. When issued and paid for in
accordance with the terms of offering, each share is fully paid and
nonassessable. All shares of beneficial interest of the same class have equal
dividend, distribution, liquidation and voting rights and are redeemable at net
asset value, at the option of the shareholder. In addition, the shares have no
preemptive, subscription or conversion rights and are freely transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted, by the provisions of such Act or applicable state law or otherwise,
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares (as defined
under "General Information" below) of each class affected by such matter. Rule
18f-2 further provides that a class shall be deemed to be affected by a matter
unless the interests of each class in the matter are substantially identical or
the matter does not affect any interest of such class. However, the Rule exempts
the selection of independent public accountants and the election of trustees
from the separate voting requirements of the Rule.
The Trust is responsible for the payment of its expenses. Such expenses
include, without limitation, the fees payable to the Investment Adviser, the
Distributor and BISYS with respect to each Fund, the fees and expenses of the
Trust's custodian with respect to each Fund, any brokerage fees and commissions
of each Fund, any portfolio losses of each Fund, filing fees for the
registration or qualification of each Fund's shares under federal or state
securities laws, the Fund's pro rata share of taxes, interest, costs of
liability insurance, fidelity bonds or indemnification, any costs, expenses or
losses arising out of any liability of, or claim for damages or other relief
asserted against the Trust with respect to the Fund for violation of any law,
each Fund's pro rata share of legal and auditing fees and expenses, expenses of
preparing and setting in type prospectuses, proxy material, reports and notices
and the printing and distributing of the same to the shareholders of each Fund
and regulatory authorities, the Fund's pro rata share of compensation and
expenses of the Trust's Trustees and officers who are not affiliated with the
Investment Adviser, the Distributor or BISYS, and extraordinary expenses
incurred by the Trust with respect to each Fund.
COUNSEL AND INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Vedder, Price, Kaufman & Kammholz, P.C. is legal counsel to the Trust
and passes upon the validity of the shares offered by the Prospectuses.
PricewaterhouseCoopers LLP, an independent registered public accounting
firm, is the Trust's independent registered public accountant. The financial
statements of each Fund incorporated in this Statement of Additional Information
by reference to the Trust's Annual Report to Shareholders for the year ended
October 31, 2004 (see "Financial Statements" below) have been so incorporated in
reliance on
42
the report of PricewaterhouseCoopers LLP given on the authority of such firm as
experts in accounting and auditing.
GENERAL INFORMATION
The Trust sends to all of the shareholders of each Fund semi-annual
reports and annual reports, including a list of investment securities held by
each Fund, and, for annual reports, audited financial statements of each Fund.
As used in each Prospectus and this Statement of Additional
Information, the term "majority," when referring to the approvals to be obtained
from shareholders, means the vote of the lesser of (1) 67% of the Fund's shares
of each class or of the class entitled to a separate vote present at a meeting
if the holders of more than 50% of the outstanding shares of all classes or of
the class entitled to a separate vote are present in person or by proxy, or (2)
more than 50% of the Fund's outstanding shares of all classes or of the class
entitled to a separate vote. The Bylaws of the Fund provide that an annual
meeting of shareholders is not required to be held in any year in which none of
the following is required to be acted on by shareholders pursuant to the 1940
Act: election of trustees; approval of the investment advisory agreement;
ratification of the selection of independent public accountants; and approval of
a distribution agreement.
The Prospectuses and this Statement of Additional Information do not
contain all the information included in the registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933 with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The registration statement, including the exhibits filed therewith,
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in each Prospectus and this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
registration statement of which the Prospectuses and Statement of Additional
Information form a part, each such statement being qualified in all respects by
such reference.
FINANCIAL STATEMENTS
The financial statements, notes and report of the Trust's independent
registered public accounting firm required to be included in this Statement of
Additional Information are incorporated herein by reference to the Trust's
Annual Report to Shareholders for the year ended October 31, 2004 (the "Annual
Report"). The Trust will provide the Annual Report without charge to each person
who requests this Statement of Additional Information.
43
APPENDIX A
EXPLANATION OF RATING CATEGORIES
The following is a description of credit ratings issued by two of the
major credit ratings agencies. Rating agencies are private services that provide
ratings of the credit quality of fixed income securities, including convertible
securities. Ratings assigned by a rating agency are not absolute standards of
credit quality and do not evaluate market risks. Rating agencies may fail to
make timely changes in credit ratings and an issuer's current financial
condition may be better or worse than a rating indicates. Although the
Investment Adviser considers security ratings when making investment decisions,
it also performs its own investment analysis and does not rely solely on the
ratings assigned by credit agencies. A Fund will not necessarily sell a security
when its rating is reduced below its rating at the time of purchase.
Bonds rated Aa by Moody's are judged to be of high quality by all
standards. Together with the Aaa Group they comprise what are known as high
grade bonds. Moody's applies the numerical modifiers 1, 2 and 3 to certain
general rating classifications, including Aa. The modifier 3 indicates that the
issue ranks in the lower end of its generic rating category. Debt rated AA by
Standard & Poor's has a very strong capacity to meet its financial commitments
and differs from the highest rated issues, which are rated AAA, only in small
degree. Ratings in certain categories, including AA, may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories. Securities rated Baa and BBB are the lowest which are
considered "investment grade" obligations. Duff and Phelps, Inc. and Fitch
Investors Service, Inc. have comparable rating systems.
STANDARD & POOR'S RATING SERVICES
BOND RATING EXPLANATION
- ------------------------------------ ------------------------------------
INVESTMENT GRADE
AAA Highest rating; extremely strong
capacity to meet its financial
commitments.
AA High quality; very strong capacity
to meet its financial commitments.
A Strong capacity to meet its
financial commitments; somewhat more
susceptible to the adverse effects
of changing circumstances and
economic conditions.
BBB Adequate capacity to meet its
financial commitments; adverse
economic conditions or changing
circumstances more likely to lead to
a weakened capacity to meet its
financial commitments.
A-1
STANDARD & POOR'S RATING SERVICES (CONTINUED)
BOND RATING EXPLANATION
- ------------------------------------ ------------------------------------
NON-INVESTMENT GRADE
BB, B, CCC, CC, C Regarded as having significant
speculative characteristics;
"BB" indicates the least degree of
speculation and "C" the highest;
quality and protective
characteristics may be outweighed by
large uncertainties or major
exposures to adverse conditions.
D In default.
MOODY'S INVESTORS SERVICE, INC.
BOND RATING EXPLANATION
- ------------------------------------ ------------------------------------
INVESTMENT GRADE
Aaa Highest quality; minimal credit
risk.
Aa High quality; subject to very low
credit risk.
A Upper-medium grade obligations;
subject to low credit risk.
Baa Medium-grade obligations; subject to
moderate credit risk; may possess
certain speculative characteristics.
NON-INVESTMENT GRADE
Ba More uncertain with speculative
elements; subject to substantial
credit risk.
B Considered speculative; subject to
high credit risk.
Caa Poor standing; subject to very high
credit risk.
Ca Highly speculative; likely in, or
very near, default with some
prospect of recovery of principal
and interest.
C Lowest-rated; typically in default
with little prospect for recovery of
principal or interest.
A-2
[AMF LOGO]
ASSET MANAGEMENT FUND
230 West Monroe Street
Chicago, IL 60606
[AMF LOGO]
ASSET MANAGEMENT FUND
MANAGED BY:
SHAY ASSETS MANAGEMENT, INC.
ANNUAL REPORT
OCTOBER 31, 2004
CHAIRMAN'S MESSAGE
Dear Shareholder:
The Asset Management Fund (AMF) family of no-load institutional mutual funds
is pleased to present to shareholders the 2004 Annual Report. This period marked
the first fiscal year since 1999 that rising interest rates decreased the market
value of all U.S. Treasury benchmark securities with maturities less than 10
years. Despite this decline, all AMF mutual fund portfolios generated positive
total returns for the year.
The Asset Management Fund continues to distinguish itself as a fund complex
designed specifically to comply with the federal regulatory guidelines
applicable to the shareholders for whom the Funds' investment objectives and
strategies were initially created: national banks, federal savings associations,
and federal credit unions. Additionally, several of the Funds are managed to
maintain their AAAf credit quality status by Standard & Poor's. Furthermore, for
our shareholders subject to the oversight of their respective state insurance
commissioners, it is important that the Adjustable Rate Mortgage (ARM) Fund and
Ultra Short Fund continue to be managed in such a way that supports their
continued inclusion on the National Association of Insurance Commissioners
(NAIC) List of Approved Mutual Funds.
The Funds' combination of investment strategies has fostered a growing
interest from an ever-increasing universe of investors, which now includes
municipalities, endowments, foundations, and pension plans. Many such
institutions are subject to investment policies that share a similar set of
guidelines emphasizing high quality, liquid securities.
As chairman of the Board of Trustees, I am pleased to convey that each member
of the Board has invested more of their personal assets in the Funds than they
received in annual compensation from the Funds. Moreover, many of the Adviser's
key personnel have opted to invest in the Funds through their defined
contribution retirement accounts and personal investment accounts.
Given the current landscape of the mutual fund industry, it is critical to
note that beyond current or proposed regulation and tantamount to any internal
policies or controls, the most important attribute of the entity responsible for
managing your wealth is the integrity of the people to whom you've assigned this
role. Given my personal involvement in the recruitment and oversight of the
individuals involved in investing the Funds' assets, it is my unwavering
conviction that there is no better entity with which to place your trust. I am
confident that you feel the same.
Sincerely,
/s/ Rodger D. Shay
Rodger D. Shay
Chairman
Asset Management Fund
This report has been prepared for the information of the shareholders of the
Asset Management Fund and must be preceded or accompanied by a prospectus. It is
not to be construed as an offering to sell or buy any shares of the Fund. Such
an offering is made only by the prospectus.
EXHIBIT I
SEASONALLY ADJUSTED CHANGE IN NON-FARM PAYROLLS
Source: U.S. Bureau of Labor Statistics
(BAR CHART)
<Table>
<Caption>
NON-FARM PAYROLLS CHANGE IN NON-FARM PAYROLLS 6 MONTH MOVING AVERAGE
- ----------------- --------------------------- ----------------------
Nov-03 83 26
Dec-03 8 29
Jan-04 159 63
Feb-04 83 81
Mar-04 353 129
Apr-04 324 168
May-04 208 189
Jun-04 96 204
Jul-04 85 192
Aug-04 198 211
Sep-04 119 172
Oct-04 303 168
</Table>
EXHIBIT II
U.S. TREASURY YIELD CURVE
Source: Bloomberg
(LINE GRAPH)
<Table>
<Caption>
10/31/03 10/29/04
-------- --------
3m 0.948 1.894
6m 1.032 2.12
2y 1.818 2.548
3y 2.24 2.761
5y 3.242 3.282
10y 4.293 4.023
30y 5.131 4.789
</Table>
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND REVIEW
As we look back over the fiscal year ended October 31, 2004, the bond market
was witness to continued expansion of the domestic U.S. economy and the first
Federal Open Market Committee (FOMC) tightening of monetary policy in five
years. Driven primarily by improving labor markets and a resurgence in capital
spending, the FOMC appears to be committed to its stated course. Indeed, after
losing an average of 40,000 jobs per month through the preceding twelve months,
employers started to hire workers and added, on average, a total of 160,000 jobs
per month during the fiscal year ended October 31, 2004 (Exhibit I).
As is customary when the FOMC has tightened monetary policy, the U.S. Treasury
yield curve flattened. Interest rates rose on securities with maturities five
years or less, with yields beyond the five-year sector actually falling (See
Exhibit II). Generally speaking, those strategies implemented to capitalize on a
flatter yield curve were big winners during the year. Additionally, securities
with coupons indexed to short-term market rates were also beneficiaries of a
FOMC committed to a measured removal of monetary policy accommodation.
In the paragraphs that follow, we will discuss asset allocation shifts in each
of the funds during the fiscal year ended October 31, 2004.
- --------------------------------------------------------------------------------
Portfolio composition is subject to change.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. Investment return and
net asset value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND REVIEW
THE ADJUSTABLE RATE MORTGAGE (ARM) FUND - Throughout the year, the portfolio
maintained its defensive positioning in an effort to mitigate the effects of a
potential rise in interest rates. As rates continued their downward trend in
early 2004, the Adviser increased the Fund's allocation to securities indexed to
the 6 Month London Interbank Offer Rate (LIBOR), from 32% to 41%, while focusing
primarily on structures lacking interim rate caps. The increased weighting was
largely funded by the sale of GNMA ARMs, which were impaired by periodic rate
caps, and contain coupons that reset only once per year. While the Fund's 5%
allocation to 11th District Cost of Funds Index (COFI) ARM securities was
initially considered a candidate for liquidation, it was decided that changes in
the make-up of the COFI index were likely to make the index more responsive to
changing rates than in the past. Therefore, we decided to maintain our position
in the COFI securities. This assessment is still awaiting confirmation.
In retrospect, the shift from GNMA ARMs to LIBOR-based ARMs represented the
most significant strategic rebalancing implemented during the year, and proved
to be the most beneficial to the Fund's performance.
As the Fed began tightening, LIBOR-based bonds were among the quickest to
respond to rising interest rates given the greater frequency with which coupon
resets occurred. These securities' faster resets also served to mitigate
downward pressure on their market value that otherwise would have accompanied by
a rise in prevailing rates. The Fund's return for the 12 month period ended
October 31, 2004 was 1.79%.
THE ULTRA SHORT FUND - The Fund continued the process of shifting exposure
towards faster resetting securities as these cash flows were well positioned for
the likelihood of higher interest rates and a flatter yield curve. This strategy
was borne out of the opinion that improving labor markets and stronger domestic
economic activity would hasten the FOMC to begin the process of monetary policy
accommodation removal. Indeed, the yield curve flattened with market rates
rising from cash to the five-year maturity sector and with yields out 10 years
or more falling over the twelve months ended October 31, 2004.
The largest asset allocation shift increased exposure to adjustable rate
mortgages (ARMs) from 67% to 84% of the portfolio during the fiscal year. As
periodic cap and coupon roll schedules were the key duration drivers for ARMs,
we endeavored to both reduce exposure to low periodic caps and increase
commitment to securities with monthly coupon resets. Toward that end, the Fund
eliminated its 8% exposure to lower coupon GNMA ARMs as they possessed a low, 1%
periodic rate cap and reset slowly with coupon changes occurring on one day,
every twelve months. Additionally, the Fund increased allocation to AAA rated,
six-month LIBOR ARMs as these investments had no periodic rate caps and reset at
six month intervals.
- --------------------------------------------------------------------------------
Portfolio composition is subject to change.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. Investment return and
net asset value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND REVIEW
We selectively added seasoned, one year Constant Maturity Treasury (CMT)
Agency ARMs which possessed relatively high, periodic (2%) and life rate caps
and monthly coupon resets. Additionally, exposure to short, AAA rated sequential
investments created from long resetting, Hybrid ARM collateral (7/1 and 10/1)
were increased during the fiscal year providing incremental yield spread to
short, agency CMOs having no periodic rate caps. The Fund also increased its
position in AAA rated, 3/1 Hybrid ARMs with 30 or more months to rate reset as
they offered both yield spread to short, fixed rate CMOs and the added benefit
of lower, "ARM-like" price volatility as the time to reset shortened.
Finally, the Fund eliminated its 9% exposure to short, corporate bonds in
favor of increasing the allocation to AA rated, monthly LIBOR floating rate
CMOs. This preference for AA rated CMOs was borne out of the combination of
outsized yield relative to fixed rate assets of lower quality, longer duration
and their high collateral credit quality (700+ Fair Isaac Credit Organization
"FICO" scores). The Fund's total return for the 12 month period ended October
31, 2004 was 1.80%.
THE SHORT U.S. GOVERNMENT FUND - The Fund shifted its exposure from one that
would benefit from lower market rates and a steeper yield curve to one that
would be better positioned for the union of higher rates and a flatter yield
curve. Indeed, the yield curve flattened with market rates rising from cash to
the five-year maturity sector and with yields out 10 years or more falling
during the twelve months ended October 31, 2004.
The largest asset allocation shift was the increase in exposure to adjustable
rate mortgages (ARMs) from 21% to 37% of the portfolio for the twelve months
ended October 31, 2004. As periodic cap and coupon roll schedules were the key
duration drivers for ARMs, we endeavored to both reduce exposure to low periodic
caps and increase commitment to securities with monthly coupon resets. The Fund
reduced exposure to lower coupon GNMA ARMs as they possessed a low, 1% periodic
rate cap and reset slowly with coupon changes occurring on one day, every twelve
months.
We selectively added seasoned, one year CMT Agency ARMs with relatively high,
periodic (2%) and life rate caps and monthly coupon rate resets. Additionally,
exposure to investments with short, sequential cash flows created from long
resetting, Hybrid ARM collateral (7/1 and 10/1) was increased from 5% to over
14% of the Fund during the fiscal year. The primary advantages of these AAA
rated, fixed rate cash flows was to provide incremental yield spread to short,
agency CMOs unencumbered by periodic rate caps.
Finally, exposure to U.S. Treasury and Agency debentures was reduced from 27%
to 15% during the twelve months ended October 31, 2004. Capitalizing on a
flatter yield curve, the Fund's maturity distribution was altered with
preference for 5 and 10-year maturities in lieu of 2 and 3 year debentures. This
strategy was particularly effective as 2 and 3 year U.S. Treasury yields were up
76 and 56 basis
- --------------------------------------------------------------------------------
Portfolio composition is subject to change.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. Investment return and
net asset value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND REVIEW
points respectively; while 10-year note yields fell 22 basis points. The Fund's
total return for the 12 month period ended October 31, 2004 was 2.11%
INTERMEDIATE MORTGAGE FUND - Starting in June 2004, the Fund began investing
in structured mortgage securities with a principal lockout and reduced its
exposure to 15-year agency pass-throughs. This strategy was implemented on the
premise that the Fed would begin a moderate tightening cycle. These assets
provided return in the form of rolling down the steep yield curve in addition to
gaining more control over the duration-drift of the assets via the tighter
principal window. During times of rising interest rates, prepayments typically
decrease and a security such as a pass-through experiences an increase in
duration because principal payments are pushed out farther in time. Longer
durations increase price volatility of a security.
The Fund also increased exposure to the hybrid ARM market in the face of the
impending Fed tightening. Hybrids provided a higher yield than conventional ARMs
and less price volatility than fixed-rate pass-throughs. During the latter half
of the year, the mortgage market tightened to the lowest spread level in recent
times, while simultaneously, the U.S. Treasury yield curve flattened. The Fund's
total return for the 12 month period ended October 31, 2004 was 2.81%.
THE US GOVERNMENT MORTGAGE FUND - The main investment theme for the fiscal
year was to capture excess spread through the ownership of fixed rate-mortgages
while reducing the risk of the inherent callability of these assets. Duration or
market exposure was targeted to between three and four years maximum. To this
end we are pleased to note that the Fund's total return for the 12 month period
ended October 31, 2004 was 4.52%.
Changes in the yield curve and security selection played a large role in
producing portfolio returns during the year. As the Federal Reserve started the
process of raising the Federal Funds Target Rate, the yield curve began to
dramatically flatten. In the spring of 2004, we positioned the portfolio to
avoid investments most affected by higher shorter-term interest rates in favor
of longer-term fixed rate mortgage pass-throughs. In retrospect, this strategy
bore significant fruit not only from a yield perspective but also a total return
approach as well. Driving this strategy was that longer-term interest rates
exhibited significantly less volatility than in years past, this despite an
active Federal Reserve inching up short-term rates. As a result, implied and
realized volatility favored investors of fixed rate mortgages even after taking
into consideration a borrower's prepayment option.
Coming off the heels of the prior year's faster prepayment environment we
pursued a strategy focusing on premium mortgages with attractive loan level
characteristics in order to help mitigate the threat of faster prepayments.
- --------------------------------------------------------------------------------
Portfolio composition is subject to change.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. Investment return and
net asset value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than the original cost.
- -------------------------
INVESTMENT
COMPARISON
Comparison of change in
value of
a hypothetical $10,000
investment for the years
ended October 31
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE FUND
[GRAPH]
<Table>
<Caption>
ADJUSTABLE RATE MORTGAGE
(ARM) FUND 6 MONTH T-BILL BELLWETHERS
------------------------ --------------------------
1994 10000 10000
1995 10802 10636
1996 11479 11243
1997 12243 11880
1998 12855 12575
1999 13463 13162
2000 14355 13962
2001 15357 14817
2002 15838 15151
2003 16087 15362
2004 16375 15551
</Table>
This graph compares the performance
of the Adjustable Rate Mortgage (ARM)
Fund to the Lehman 6 Month T-Bill
Bellwethers Index.
-------------------------------------
Adjustable Rate Mortgage (ARM) Fund
Average Annual Return
<Table>
One Five Ten
Year Year Year
------------------------------
1.79% 3.99% 5.05%
</Table>
- --------------------------------------------------------------------------------
ULTRA SHORT FUND
[GRAPH]
<Table>
<Caption>
ULTRA SHORT FUND 6 MONTH T-BILL BELLWETHERS
---------------- --------------------------
2001 10000 10000
2002 10229 10226
2003 10420 10368
2004 10608 10496
</Table>
This graph compares the performance
of the Ultra Short Fund to the Lehman
6 Month T-Bill Bellwethers Index.
-------------------------------------
Ultra Short Fund
Average Annual Return
<Table>
One Since
Year Inception
-------------------
1.80% 2.01%
The chart represents historical performance of an initial
investment of $10,000 in the Ultra Short Fund from November 14,
2001 to October 31, 2004.
</Table>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. PERFORMANCE FIGURES IN
THE TABLE AND GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER
WOULD PAY ON THE FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. The Lehman
6 Mo. T-Bill Bellwethers Index is an unmanaged index comprised of U.S.
Government Treasury Bonds with an average maturity of six months. The Lehman
index represents unmanaged groups of bonds that differ from the composition of
each AMF Fund. The Lehman index does not include a reduction in return for
expenses. Investors cannot invest directly in an index, although they can invest
in its underlying securities.
- -------------------------
INVESTMENT
COMPARISON
Comparison of change in
value of
a hypothetical $10,000
investment for the years
ended October 31
- --------------------------------------------------------------------------------
SHORT U.S. GOVERNMENT FUND
[GRAPH]
<Table>
<Caption>
SHORT U.S. GOVERNMENT FUND LEHMAN 1-3 YR INDEX
-------------------------- -------------------
1994 10000 10000
1995 10894 10883
1996 11438 11534
1997 12128 12281
1998 12987 13221
1999 13313 13613
2000 14081 14448
2001 15442 16062
2002 16056 16877
2003 16364 17235
2004 16710 17567
</Table>
This graph compares the performance
of the Short U.S. Government Fund to
the Lehman Short Government 1-3 Year
Index.
-------------------------------------
Short U.S. Government Fund
Average Annual Return
<Table>
One Five Ten
Year Year Year
------------------------------
2.11% 4.65% 5.27%
</Table>
- --------------------------------------------------------------------------------
INTERMEDIATE MORTGAGE FUND
[GRAPH]
<Table>
<Caption>
INTERMEDIATE MORTGAGE FUND LEHMAN MORTGAGE INDEX
-------------------------- ---------------------
1994 10000 10000
1995 11063 11461
1996 11597 12254
1997 12514 13372
1998 13413 14348
1999 13724 14777
2000 14612 15897
2001 16306 17977
2002 16979 19110
2003 17219 19635
2004 17703 20729
</Table>
This graph compares the performance
of the Intermediate Mortgage Fund to
the Lehman Mortgage Index.
-------------------------------------
Intermediate Mortgage Fund
Average Annual Return
<Table>
One Five Ten
Year Year Year
------------------------------
2.81% 5.22% 5.88%
</Table>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. PERFORMANCE FIGURES IN
THE TABLE AND GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER
WOULD PAY ON THE FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. The Lehman
Short Government 1-3 Year Index is an unmanaged index generally representative
of government and investment-grade corporate securities with maturities of one
to three years. The Lehman Mortgage Index is a broad-based unmanaged index that
represents the general performance of fixed rate mortgage bonds. Lehman indices
represent unmanaged groups of bonds that differ from the composition of each AMF
Fund. The Lehman indices do not include a reduction in return for expenses.
Investors cannot invest directly in an index, although they can invest in its
underlying securities.
- -------------------------
INVESTMENT
COMPARISON
Comparison of change in
value of
a hypothetical $10,000
investment for the years
ended October 31
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE FUND
[GRAPH]
<Table>
<Caption>
US GOVERNMENT MORTGAGE FUND LEHMAN MORTGAGE INDEX
--------------------------- ---------------------
1994 10000 10000
1995 11237 11461
1996 11871 12254
1997 12923 13372
1998 13902 14348
1999 14129 14777
2000 15104 15897
2001 16914 17977
2002 17682 19110
2003 18043 19635
2004 18859 20729
</Table>
This graph compares the performance
of the U.S. Government Mortgage Fund
to the Lehman Mortgage Index.
-------------------------------------
U.S. Government Mortgage Fund
Average Annual Return
<Table>
One Five Ten
Year Year Year
------------------------------
4.52% 5.95% 6.55%
</Table>
- --------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. PERFORMANCE FIGURES IN
THE TABLE AND GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER
WOULD PAY ON THE FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. The Lehman
Mortgage Index is a broad-based unmanaged index that represents the general
performance of fixed rate mortgage bonds. The Lehman index represents unmanaged
groups of bonds that differ from the composition of each AMF Fund. The Lehman
index does not include a reduction in return for expenses. Investors cannot
invest directly in an index, although they can invest in its underlying
securities.
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
MONEY MARKET FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- -----------------------------------------------------------------------------------------------------
AGENCY OBLIGATIONS................................ 68.5%
Fannie Mae -- Discount Note
1.74% 11/10/04 $ 5,000,000 $ 4,997,825
1.73% 11/18/04 4,000,000 3,996,732
1.81% 12/10/04 10,000,000 9,980,392
-----------
18,974,949
-----------
Freddie Mac -- Discount Note
1.64% 11/30/04 5,000,000 4,993,394
1.81% 1/24/05 7,000,000 6,970,437
-----------
11,963,831
-----------
Federal Home Loan Bank -- Discount Note
1.69% 11/2/04 4,000,000 3,999,812
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $34,938,592) 34,938,592
-----------
REPURCHASE AGREEMENTS............................. 31.6%
Citigroup, 1.77%, (Agreement dated 10/29/04 to
be repurchased at $16,109,376 on 11/1/04.
Collateralized by various U.S. Government
Securities, 5.00%-6.50%, with a value of
$16,455,019, due 6/1/34-9/1/34) 16,107,000 16,107,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $16,107,000) 16,107,000
-----------
TOTAL INVESTMENTS................................. 100.1%
(Cost $51,045,592) (a) 51,045,592
LIABILITIES IN EXCESS OF OTHER ASSETS............. (0.1%) (73,760)
-----------
Net Assets applicable to 50,983,375 Shares of
Common Stock issued and outstanding............. 100.0% $50,971,832
===========
Net Asset Value, Class I, offering and redemption
price per share ($31,883,056 / 31,894,313) $1.00
===========
Net Asset Value, Class D, offering and redemption
price per share ($19,088,776 / 19,089,062) $1.00
===========
</Table>
- --------------------------------------------------------------------------------
(a) Cost for federal income tax purposes is the same.
See notes to financial statements.
1
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-
RELATED SECURITIES*....................... 78.7%
1 Yr. Constant Maturity Treasury Based
ARMS
Bear Stearns Adjustable Rate Mortgage
Trust
4.00% 3/25/31 $ 12,891,002 $ 13,116,595
Fannie Mae
3.91% 7/1/28 15,648,112 16,259,358
3.75% 1/1/29 15,792,681 16,409,574
3.66% 8/1/29 12,832,792 13,334,066
4.33% 3/1/30 9,004,854 9,217,405
3.80% 6/1/30 13,736,177 14,272,739
3.74% 9/1/30 7,835,685 8,141,762
3.52% 5/1/33 18,298,243 18,967,172
3.98% 5/25/42 33,279,380 34,194,563
Fannie Mae Grantor Trust
4.16% 5/25/42 17,254,124 17,728,612
Fannie Mae Whole Loan
4.17% 8/25/42 15,241,402 15,660,540
Fifth Third Mortgage Loan Trust
3.55% 11/19/32 29,363,510 29,574,560
Freddie Mac
4.11% 10/1/22 5,487,375 5,658,372
5.49% 8/1/24 7,676,737 7,976,605
3.59% 9/1/27 6,498,953 6,719,170
3.57% 12/1/27 9,143,833 9,496,566
3.65% 12/1/27 9,827,457 10,211,337
3.61% 9/1/28 49,628,285 51,566,865
3.78% 9/1/30 6,571,687 6,828,390
3.69% 7/1/31 33,886,992 35,191,675
Government National Mortgage
Association II
4.63% 10/20/25 3,300,998 3,368,141
4.63% 10/20/26 5,214,864 5,320,389
3.75% 8/20/27 10,658,311 10,816,172
4.63% 10/20/27 3,638,450 3,711,522
Structured Asset Mortgage Investments
3.83% 3/25/32 11,097,321 11,208,294
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
2
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
Washington Mutual
2.78% 4/25/44 $ 57,955,611 $ 58,498,946
--------------
433,449,390
--------------
6 Mo. Certificate of Deposit Based ARMS
Fannie Mae
2.57% 6/1/21 6,814,607 6,834,471
3.03% 12/1/24 9,563,618 9,710,239
Freddie Mac
3.10% 1/1/26 3,317,696 3,361,479
--------------
19,906,189
--------------
6 Mo. London Interbank Offering Rate
(LIBOR) Based ARMS
Bear Stearns Adjustable Rate Mortgage
Trust
4.69% 3/25/31 2,246,154 2,282,654
DLJ Mortgage Acceptance Corp.
4.03% 4/25/24 378,946 378,946
Fannie Mae
3.26% 9/1/27 53,940,695 54,815,775
2.51% 12/1/27 27,987,499 28,670,786
2.91% 3/1/28 56,334,306 57,661,429
3.00% 3/1/28 64,850,905 66,522,827
3.36% 4/1/28 19,865,419 20,330,608
2.60% 6/1/28 37,086,067 38,078,082
3.00% 6/1/28 6,580,152 6,748,979
2.79% 7/1/28 12,742,094 13,080,919
3.00% 8/1/28 17,921,800 18,377,767
3.26% 9/1/28 11,005,168 11,248,536
3.38% 9/1/28 3,710,524 3,802,678
3.16% 11/1/32 10,469,808 10,727,753
2.69% 12/1/32 9,200,101 9,473,528
3.10% 3/1/33 19,394,518 19,924,105
3.18% 9/1/33 26,567,486 27,120,834
3.24% 9/1/33 16,056,014 16,340,430
3.11% 11/1/33 34,272,179 35,033,124
3.21% 11/1/33 29,203,076 29,771,367
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
3
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
Freddie Mac
3.67% 9/1/30 $ 15,364,188 $ 15,815,926
Master Adjustable Rate Mortgage Trust
3.90% 1/25/34 23,797,532 24,251,173
MLCC Mortgage Investors, Inc.
3.41% 10/25/28 88,666,130 91,242,988
3.18% 5/25/29 57,074,585 58,768,987
Sequoia Mortgage Trust
2.82% 7/20/34 47,210,701 48,361,462
Structured Adjustable Rate Mortgage
Loan Trust
4.23% 11/25/34 30,000,000 31,087,500
Structured Asset Mortgage Investments
3.36% 7/19/32 30,571,717 31,230,920
3.40% 8/19/33 79,825,021 82,169,881
3.36% 10/19/33 64,354,315 65,963,173
3.52% 11/19/33 39,739,599 40,956,624
Structured Asset Securities Corp.
3.25% 5/25/32 36,043,392 36,606,570
3.92% 11/25/32 34,704,719 35,854,313
3.85% 12/25/32 30,526,768 31,585,665
3.86% 2/25/33 58,051,120 60,119,191
4.23% 3/25/33 32,581,417 33,762,493
4.35% 5/25/33 79,710,385 82,674,615
3.79% 9/25/33 83,436,407 86,513,124
4.10% 11/25/33 38,983,707 40,433,414
--------------
1,367,789,146
--------------
Cost of Funds Index Based ARMS
Fannie Mae
3.01% 11/1/32 17,105,604 17,263,249
3.07% 8/1/33 36,151,196 36,524,240
3.22% 11/1/36 46,089,249 46,591,714
3.11% 6/1/38 29,851,233 30,151,925
Washington Mutual
3.05% 11/25/42 27,282,346 27,316,449
--------------
157,847,577
--------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
4
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
HYBRID ARMS
Bank of America Mortgage Securities
6.32% 6/20/31 $ 5,686,895 $ 5,743,764
5.88% 7/20/32 4,548,872 4,575,881
Bear Stearns Adjustable Rate Mortgage
Trust
3.76% 11/25/34 36,921,809 37,094,880
CS First Boston Mortgage Securities
Corp.
6.32% 11/25/31 6,949,679 7,064,783
5.06% 6/25/32 6,700,932 6,736,531
GSR Mortgage Loan Trust
4.74% 10/25/33 21,970,002 22,100,449
JP Morgan Mortgage Trust
3.50% 5/25/34 33,324,252 33,303,424
Master Adjustable Rate Mortgage Trust
5.46% 10/25/32 11,265,469 11,409,807
Merrill Lynch Mortgage Investors
5.29% 6/25/23 2,482,330 2,481,554
Structured Adjustable Rate Mortgage
Loan Trust
4.74% 7/25/34 59,008,895 59,267,060
5.07% 9/25/34 29,126,439 29,799,988
Structured Asset Securities Corp.
4.23% 9/25/33 44,396,653 44,563,140
Wells Fargo Mortgage Backed Securities
Trust
4.64% 10/25/33 51,776,409 52,051,472
4.64% 10/25/33 20,556,605 20,633,692
4.52% 11/25/33 50,306,394 50,542,205
4.76% 1/25/34 25,041,395 25,432,666
4.77% 6/25/34 24,973,103 25,176,009
4.82% 7/25/34 35,923,512 36,159,260
3.98% 10/25/34 46,048,145 46,451,066
--------------
520,587,631
--------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
5
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
MONTHLY London Interbank Offering Rate
(LIBOR) Collateralized Mortgage
Obligation
Fannie Mae
3.00% 9/1/28 $ 22,633,475 $ 23,139,695
2.29% 9/18/31 13,560,068 13,593,536
3.19% 2/1/33 32,176,128 33,087,871
2.87% 7/1/33 5,216,971 5,340,634
3.04% 9/1/33 16,654,532 17,059,787
GSR Mortgage Loan Trust
2.28% 3/25/32 9,281,590 9,261,346
Master Asset Securitization Trust
2.38% 12/25/32 385,309 385,309
MLCC Mortgage Investors, Inc.,
2.25% 9/15/21 8,572,544 8,585,938
--------------
110,454,116
--------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*
(Cost $2,593,556,315) 2,610,034,049
--------------
FIXED RATE MORTGAGE-RELATED SECURITIES...... 13.9%
Collateralized Mortgage Obligations
Bank of America Mortgage Securities
4.25% 8/25/33 38,701,642 38,925,817
Citicorp Mortgage Securities
5.00% 10/25/33 16,789,918 16,958,093
Fannie Mae
4.50% 5/25/19 40,000,000 40,824,324
5.00% 12/25/21 29,632,782 30,177,785
4.50% 3/25/27 40,389,000 40,974,135
3.00% 11/25/15 15,591,445 15,600,683
Fannie Mae Whole Loan
3.25% 6/25/33 3,665,794 3,662,357
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
6
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
Freddie Mac
5.00% 3/15/11 $ 12,966,808 $ 13,033,665
4.50% 8/15/11 10,484,219 10,575,559
5.00% 6/15/16 25,000,000 25,872,823
4.00% 7/15/17 32,500,000 32,880,933
3.50% 7/15/18 16,727,494 16,761,684
4.00% 7/15/18 27,797,443 28,012,075
4.00% 12/15/18 40,000,000 40,596,676
5.00% 1/15/21 56,272,541 57,927,994
Structured Asset Securities Corp.
3.25% 8/25/32 5,591,489 5,593,641
Washington Mutual MSC Mortgage Pass
Through
5.00% 2/25/33 37,090,582 37,742,579
Wells Fargo Mortgage Backed Securities
Trust
5.00% 2/25/33 6,159,458 6,174,327
--------------
TOTAL FIXED RATE MORTGAGE-RELATED
SECURITIES
(Cost $460,700,420) 462,295,150
--------------
U.S. TREASURY OBLIGATIONS................... 0.6%
U.S. Treasury Notes
3.38% 9/15/09.. 20,000,000 20,087,500
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $20,044,592) 20,087,500
--------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
7
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS....................... 6.6%
Citigroup, 1.77%, (Agreement dated
10/29/04 to be repurchased at
$119,025,554 on 11/1/04. Collateralized
by various Adjustable Rate Mortgage
U.S. Government Securities,
3.05%-6.11%, with a value of
$121,939,830, due
7/1/25-10/1/34) $119,008,000 $ 119,008,000
--------------
Bear Stearns*, 1.87%, (Agreement dated
10/19/04 to be repurchased at
$99,647,139 on 11/19/04. Collateralized
by various Adjustable Rate Mortgage
U.S. Government Securities,
2.27%-2.87%, with a value of
$102,586,755, due 6/15/23-10/15/33) 99,502,000 99,502,000
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $218,510,000) 218,510,000
--------------
TOTAL INVESTMENTS
(Cost $3,292,811,327) (a)................. 99.8% 3,310,926,699
OTHER ASSETS IN EXCESS OF LIABILITIES....... 0.2% 6,097,684
--------------
Net Assets applicable to 337,306,907 Shares
of Common Stock issued and outstanding.... 100.0% $3,317,024,383
==============
Net Asset Value, offering and redemption
price per share ($3,317,024,383 /
337,306,907) $9.83
==============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at October 31, 2004.
(a) Cost for federal income tax purposes is the same.
See notes to financial statements.
8
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES*... 84.1%
1 Yr. Constant Maturity Treasury Based ARMS
Fannie Mae
3.85% 10/1/26 $ 2,640,041 $ 2,733,919
3.83% 10/1/28 2,637,506 2,733,073
4.02% 12/1/30 8,086,363 8,402,233
3.80% 8/1/31 5,924,875 6,102,064
Freddie Mac
3.70% 11/1/28 3,163,871 3,287,458
4.15% 1/1/29 6,829,348 7,096,116
3.76% 9/1/30 2,261,755 2,324,587
3.88% 8/1/31 13,476,663 14,003,088
Fund America Investors Corp.
3.60% 6/25/23 5,053,309 5,065,942
Washington Mutual
2.78% 4/25/44 8,916,248 8,999,838
------------
60,748,318
------------
6 Mo. Certificate of Deposit Based ARMS
Fannie Mae
2.55% 4/1/20 7,126,966 7,145,710
6 Mo. London Interbank Offering Rate (LIBOR)
Based ARMS
Fannie Mae
2.72% 12/1/26 10,035,844 10,250,199
2.79% 7/1/28 6,994,417 7,180,405
3.30% 9/1/32 9,969,028 10,195,165
MLCC Mortgage Investors, Inc.
3.18% 5/25/29 13,793,025 14,202,505
3.10% 7/25/29 14,668,858 15,099,757
Sequoia Mortgage Trust
3.05% 6/20/34 18,517,582 18,968,949
Structured Adjustable Rate Mortgage Loan
Trust
3.85% 8/25/34 4,782,619 4,973,924
Structured Asset Securities Corp.
3.92% 11/25/32 5,532,043 5,715,292
4.15% 11/25/32 5,532,043 5,720,478
------------
92,306,674
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
9
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
Cost of Funds Index Based ARMS
Regal Trust
3.36% 9/29/31 $ 2,243,290 $ 2,247,496
Ryland Mortgage Securities Corp.
3.70% 10/25/23 1,572,651 1,572,651
------------
3,820,147
------------
HYBRID ARMS
Bear Stearns Adjustable Rate Mortgage Loan
Trust
3.76% 11/25/34 13,744,629 13,809,057
GSR Mortgage Loan Trust
4.74% 10/25/33 4,432,564 4,458,882
Structured Adjustable Rate Mortgage Loan
Trust
4.74% 7/25/34 8,429,842 8,466,723
5.07% 9/25/34 14,563,219 14,899,994
Wells Fargo Mortgage Backed Securities
Trust
4.91% 5/25/34 16,889,238 17,042,297
4.82% 7/25/34 8,980,878 9,039,815
------------
67,716,768
------------
MONTHLY London Interbank Offering Rate
(LIBOR) Collateralized Mortgage
Obligations
Structured Asset Securities Corp.
3.18% 3/25/33 4,229,155 4,293,914
3.28% 5/25/33 4,997,904 5,096,300
3.13% 11/25/33 3,575,356 3,627,869
------------
13,018,083
------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*
(Cost $243,667,349) 244,755,700
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
10
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
FIXED RATE MORTGAGE-RELATED SECURITIES......... 13.9%
Collateralized Mortgage Obligations
Freddie Mac
5.00% 6/15/16 $12,500,000 $ 12,936,411
5.50% 6/15/34 8,531,551 8,706,110
GSR Mortgage Loan Trust
4.50% 4/25/33 6,543,843 6,545,341
Morgan Stanley Mortgage Loan Trust
4.75% 8/25/34 12,157,000 12,407,738
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $40,455,020) 40,595,600
------------
U.S. TREASURY OBLIGATIONS 1.0%
U.S. Treasury Notes
3.50% 8/15/09 3,000,000 3,031,875
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $3,006,109) 3,031,875
------------
REPURCHASE AGREEMENTS 0.8%
Citigroup 1.77%, (Agreement dated 10/29/04 to
be repurchased at $2,322,343 on 11/1/04.
Collateralized by a U.S. Government
Securities, 5.00%, with a value of
$2,374,848, due 4/1/34) 2,322,000 2,322,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $2,322,000) 2,322,000
------------
TOTAL INVESTMENTS
Cost $289,450,478)(a)...................... 99.8% 290,705,175
OTHER ASSETS IN EXCESS OF LIABILITIES........ 0.2% 643,338
------------
Net Assets applicable to 29,506,245 Shares of
Common Stock issued and outstanding.......... 100.0% $291,348,513
============
Net Asset Value, offering and redemption price
per share ($291,348,513 / 29,506,245) $9.87
============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at October 31, 2004.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $44,285.
Cost for federal income tax purposes differs from fair value by net
unrealized appreciation of securities as follows:
<Table>
Unrealized appreciation.................................... $1,461,580
Unrealized depreciation.................................... (251,168)
----------
Net unrealized appreciation................................ $1,210,412
==========
</Table>
See notes to financial statements.
11
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES*... 36.6%
1 Yr. Constant Maturity Treasury Based ARMS
Fannie Mae
3.59% 5/1/26 $ 6,061,603 $ 6,298,381
4.35% 11/1/29 1,749,878 1,792,349
4.33% 3/1/30 1,233,598 1,262,716
Freddie Mac
3.83% 5/1/18 1,842,850 1,901,210
3.88% 8/1/31 15,518,190 16,124,362
4.24% 9/1/32 1,690,339 1,729,553
Government National Mortgage Association
II
4.63% 12/20/23 2,927,521 2,990,384
3.75% 7/20/27 795,733 807,900
4.63% 12/20/27 1,408,106 1,436,409
------------
34,343,264
------------
HYBRID ARMS
Structured Adjustable Rate Mortgage Loan
Trust
4.74% 7/25/34 12,644,763 12,700,084
Wells Fargo Mortgage Backed Securities
Trust
4.82% 7/25/34 8,980,878 9,039,815
------------
21,739,899
------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*
(Cost $55,914,529) 56,083,163
------------
FIXED RATE MORTGAGE-RELATED SECURITIES......... 44.1%
15 Yr. Securities
Freddie Mac
8.50% 8/17/07 967,189 995,469
8.00% 12/17/15 1,740,874 1,837,097
------------
2,832,566
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
12
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations
Freddie Mac
7.00% 12/15/06 $ 360,433 $ 359,981
5.00% 6/15/16 12,500,000 12,936,411
5.00% 9/15/17 15,000,000 15,548,888
4.00% 12/15/17 10,000,000 10,170,040
4.50% 9/15/22 10,000,000 10,243,358
5.00% 7/15/26 15,000,000 15,417,689
------------
64,676,367
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $67,193,776) 67,508,933
------------
U.S. TREASURY OBLIGATIONS...................... 15.1%
U.S. Treasury Notes
2.63% 5/15/08 3,000,000 2,967,656
3.38% 11/15/08 5,000,000 5,053,906
3.25% 1/15/09 2,000,000 2,009,062
2.63% 3/15/09 5,000,000 4,889,844
3.63% 7/15/09 2,000,000 2,032,500
3.38% 9/15/09 2,000,000 2,008,750
4.75% 5/15/14 3,000,000 3,172,500
4.25% 8/15/14 1,000,000 1,017,813
------------
23,152,031
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $23,189,885) 23,152,031
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
13
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS.......................... 3.7%
Citigroup, 1.77%, (Agreement dated 10/29/04
to be repurchased at $5,683,838 on
11/1/04. Collateralized by a U.S.
Government Security, 4.50%, with a value
of $5,813,356, due 7/1/18) $ 5,683,000 $ 5,683,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $5,683,000) 5,683,000
------------
TOTAL INVESTMENTS
(Cost $151,981,190)(a)....................... 99.5% 152,427,127
OTHER ASSETS IN EXCESS OF LIABILITIES.......... 0.5% 824,961
------------
Net Assets applicable to 14,441,347 Shares of
Common Stock issued and outstanding.......... 100.0% $153,252,088
============
Net Asset Value, offering and redemption price
per share ($153,252,088 / 14,441,347) $10.61
============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at October 31, 2004.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $14,967.
Cost for federal income tax purposes differs from fair value by net
unrealized appreciation of securities as follows:
<Table>
Unrealized appreciation.................................. $ 655,762
Unrealized depreciation.................................. (224,792)
---------
Net unrealized appreciation.............................. $ 430,970
=========
</Table>
See notes to financial statements.
14
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES*... 22.2%
HYBRID ARMS
Morgan Stanley Mortgage Loan Trust
4.92% 9/25/34 $15,000,000 $ 15,450,000
5.47% 10/25/34 11,000,000 11,467,500
4.21% 8/25/34 9,409,874 9,471,626
Structured Adjustable Rate Mortgage Loan
Trust
4.74% 7/25/34 9,003,071 9,042,460
5.21% 9/25/34 20,594,132 20,915,915
------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES* (Cost $65,969,120) 66,347,501
------------
AGENCY OBLIGATIONS............................. 0.7%
Freddie Mac
5.75% 3/15/09 2,000,000 2,182,978
------------
TOTAL AGENCY OBLIGATIONS (Cost $1,851,505) 2,182,978
------------
FIXED RATE MORTGAGE-RELATED SECURITIES......... 68.5%
15 Yr. Securities
Fannie Mae
7.00% 3/1/15 1,914,636 2,035,946
7.00% 3/1/15 1,015,875 1,080,240
7.00% 3/1/15 1,077,739 1,146,024
7.50% 11/1/15 1,414,773 1,507,838
6.50% 1/1/16 1,429,985 1,520,700
6.00% 6/1/16 3,144,726 3,305,647
6.00% 7/1/17 2,980,853 3,133,389
6.00% 7/1/17 2,007,843 2,110,589
5.50% 9/1/17 5,316,942 5,524,843
5.00% 11/1/17 10,238,068 10,484,021
4.50% 5/1/18 9,015,838 9,068,312
4.50% 9/1/18 13,022,302 13,073,678
5.00% 11/1/18 10,401,822 10,641,958
5.00% 2/1/19 10,659,201 10,901,947
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
15
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
Freddie Mac
7.50% 1/1/10 $ 1,079,635 $ 1,148,800
6.00% 6/1/17 3,293,822 3,461,858
5.00% 12/1/18 8,498,911 8,685,157
5.00% 5/1/19 20,378,200 20,831,137
------------
109,662,084
------------
Balloons
Freddie Mac Gold
5.50% 8/1/11 4,786,858 4,916,627
------------
Collateralized Mortgage Obligations
Countrywide Home Loan
5.00% 5/25/34 6,774,609 6,810,690
Fannie Mae
4.50% 6/25/18 9,724,426 9,851,651
Freddie Mac
4.00% 12/15/16 18,301,167 18,337,555
4.50% 9/15/22 13,601,000 13,931,991
5.00% 7/15/26 15,000,000 15,417,689
Washington Mutual MSC Mortgage Pass
Through
4.55% 5/25/33 16,657,079 16,668,061
Wells Fargo Mortgage Backed Securities
Trust
5.50% 10/25/14 8,244,838 8,488,069
------------
89,505,706
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $201,797,620) 204,084,417
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
16
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- --------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS...................... 4.4%
U.S. Treasury Notes
3.00% 11/15/07 $10,000,000 $ 10,051,560
3.38% 9/15/09 3,000,000 3,013,125
------------
13,064,685
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $13,063,996) 13,064,685
------------
REPURCHASE AGREEMENTS.......................... 4.2%
Citigroup, 1.77%, (Agreement dated 10/29/04
to be repurchased at $12,488,842 on
11/1/04. Collateralized by various
Adjustable Rate Mortgage U.S. Government
Securities, 2.66%-4.79%, with a value of
$12,908,456, due 7/1/32-6/1/40) 12,487,000 12,487,000
------------
TOTAL REPURCHASE AGREEMENTS (Cost
$12,487,000) 12,487,000
------------
TOTAL INVESTMENTS (Cost $295,169,241)(a)....... 100.0% 298,166,581
OTHER ASSETS IN EXCESS OF LIABILITIES.......... 0.0% 141,459
------------
Net Assets applicable to 31,158,479 Shares of
Common Stock issued and outstanding.......... 100.0% $298,308,040
============
Net Asset Value, offering and redemption price
per share ($298,308,040 / 31,158,479) $9.57
============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at October 31, 2004.
(a) Cost for federal income tax purposes is the same.
See notes to financial statements.
17
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
U.S. GOVERNMENT MORTGAGE FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- -----------------------------------------------------------------------------------------------------
AGENCY OBLIGATIONS.............................. 2.0%
Freddie Mac
5.75% 3/15/09 $ 3,000,000 $ 3,274,467
------------
TOTAL AGENCY OBLIGATIONS
(Cost $2,796,412) 3,274,467
------------
FIXED RATE MORTGAGE-RELATED SECURITIES.......... 91.7%
15 Yr. Securities
Fannie Mae
7.00% 3/1/15 1,703,086 1,810,993
6.00% 8/1/16 6,414,211 6,742,438
5.00% 3/1/18 2,741,809 2,807,677
Freddie Mac
5.50% 7/1/19 7,295,403 7,572,686
------------
18,933,794
------------
30 Yr. Securities
Fannie Mae
5.00% 8/1/33(a) 14,646,990 14,628,681
5.50% 11/1/33 16,717,016 17,067,682
6.00% 12/1/33 17,570,402 18,247,136
5.50% 4/1/34 6,865,522 7,008,250
6.00% 6/1/34 10,249,724 10,682,935
5.50% 7/1/34 20,670,452 21,084,669
5.50% 7/1/34 12,532,478 12,783,618
5.50% 8/1/34 11,948,314 12,206,417
5.00% TBA 11/1/34 10,000,000 9,962,500
Freddie Mac Gold
6.00% 4/1/33 6,075,276 6,301,675
Government National Mortgage Association
7.50% 2/15/24 900,976 979,671
7.00% 4/15/27 1,405,747 1,510,794
6.00% 1/15/29 1,562,508 1,635,140
------------
134,099,168
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
18
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
U.S. GOVERNMENT MORTGAGE FUND (CONTINUED)
STATEMENT OF NET ASSETS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET
ASSETS MATURITY PAR VALUE
- -----------------------------------------------------------------------------------------------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $149,587,293) $153,032,962
------------
U.S. TREASURY OBLIGATIONS....................... 11.0%
U.S. Treasury Notes
4.00% 6/15/09 $ 4,000,000 4,131,250
6.50% 2/15/10 7,000,000 8,056,563
4.25% 8/15/14 6,000,000 6,106,875
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $17,575,129) 18,294,688
------------
REPURCHASE AGREEMENTS........................... 1.2%
Citigroup, 1.77%, (Agreement dated 10/29/04 to
be repurchased at $2,034,300 on 11/1/04.
Collateralized by an Adjustable Rate
Mortgage U.S. Government Securities, 4.61%,
with a value of $2,167,516, due 9/1/34) 2,034,000 2,034,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $2,034,000) 2,034,000
------------
TOTAL INVESTMENTS
(Cost $171,992,834) (b)....................... 105.9% 176,636,117
LIABILITIES IN EXCESS OF OTHER ASSETS........... (5.9%) (9,768,162)
------------
Net Assets applicable to 15,760,092 Shares of
Common Stock issued and outstanding........... 100.0% $166,867,955
============
Net Asset Value, offering and redemption price
per share ($166,867,955 / 15,760,092) $10.59
============
</Table>
- --------------------------------------------------------------------------------
(a) All or part of this security was used as collateral as of 10/31/04.
(b) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $136,721.
Cost for federal income tax purposes differs from fair value by net
unrealized appreciation of securities as follows:
<Table>
Unrealized appreciation..................................... $4,506,562
Unrealized depreciation..................................... --
----------
Net unrealized appreciation................................. $4,506,562
==========
</Table>
TBA -- To be Announced/when-issued security
See notes to financial statements.
19
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE U.S.
MONEY RATE MORTGAGE ULTRA SHORT U.S. INTERMEDIATE GOVERNMENT
MARKET (ARM) SHORT GOVERNMENT MORTGAGE MORTGAGE
FUND FUND FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income............ $ 652,162 $90,353,766 $6,969,186 $5,481,390 $10,797,006 $7,519,687
---------- ----------- ---------- ----------- ----------- ----------
Operating expenses:
Investment advisory
fee.................... 84,928 16,367,197 1,269,198 460,905 1,084,940 451,487
Distribution fee -- Class
I Shares............... 54,146 9,576,510 705,109 276,545 464,980 270,895
Distribution fee -- Class
D
Shares................. 123,129 -- -- -- -- --
Administration fee....... 16,986 683,041 84,616 55,310 92,998 54,180
Custodian fee............ 13,820 302,879 39,807 32,583 42,796 30,662
Transfer agent fee....... 4,349 78,632 8,888 3,484 3,718 1,785
Legal.................... 1,539 80,197 8,399 3,255 7,744 4,173
Printing................. 743 46,265 3,054 2,077 3,884 2,146
Trustees' fee............ 1,064 68,220 4,895 3,269 5,397 3,157
Other.................... 23,959 447,994 38,604 38,620 51,354 31,586
---------- ----------- ---------- ----------- ----------- ----------
Total expenses before fee
reductions............. 324,663 27,650,935 2,162,570 876,048 1,757,811 850,071
Expenses reduced by
Investment Adviser..... (84,928) (6,790,692) (564,089) -- (309,980) --
Expenses reduced by
Distributor............ (74,667) (3,830,560) (282,040) -- -- --
---------- ----------- ---------- ----------- ----------- ----------
Net expenses........... 165,068 17,029,683 1,316,441 876,048 1,447,831 850,071
---------- ----------- ---------- ----------- ----------- ----------
Net investment income.. 487,094 73,324,083 5,652,745 4,605,342 9,349,175 6,669,616
---------- ----------- ---------- ----------- ----------- ----------
REALIZED AND UNREALIZED
GAINS/(LOSSES) FROM
INVESTMENT ACTIVITIES:
Realized gains/(losses)
from investment
transactions............. -- (9,290,088) (825,070) 517,417 (1,442,590) (2,022,919)
Change in unrealized
appreciation/depreciation
from investments......... -- 3,530,500 30,025 (1,221,548) 763,779 3,133,197
---------- ----------- ---------- ----------- ----------- ----------
Net realized/unrealized
gains/(losses) from
investments.............. -- (5,759,588) (795,045) (704,131) (678,811) 1,110,278
---------- ----------- ---------- ----------- ----------- ----------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS.............. $ 487,094 $67,564,495 $4,857,700 $3,901,211 $ 8,670,364 $7,779,894
========== =========== ========== =========== =========== ==========
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
20
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET FUND
------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2004 2003
- --------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income.................................. $ 487,094 $ 421,206
------------- -------------
Change in net assets resulting from operations....... 487,094 421,206
------------- -------------
Dividends paid to Class I stockholders:
From net investment income............................. (376,981) (330,837)
Dividends paid to Class D stockholders:
From net investment income............................. (110,113) (90,369)
------------- -------------
Total dividends paid to stockholders................. (487,094) (421,206)
------------- -------------
Capital Transactions Class I Shares:
Proceeds from sale of shares........................... 212,174,352 303,435,934
Shares issued to stockholders in reinvestment of
dividends............................................. 337,606 321,764
Cost of shares repurchased............................. (221,365,484) (293,591,768)
Capital Transactions Class D Shares:
Proceeds from sale of shares........................... 385,481,528 228,413,674
Shares issued to stockholders in reinvestment of
dividends............................................. 47,207 42,261
Cost of shares repurchased............................. (389,965,369) (219,969,777)
------------- -------------
Net increase (decrease) in net assets from capital
transactions........................................ (13,290,160) 18,652,088
------------- -------------
Total increase (decrease) in net assets.............. (13,290,160) 18,652,088
Net Assets:
Beginning of year......................................... 64,261,992 45,609,904
------------- -------------
End of year............................................... $ 50,971,832 $ 64,261,992
============= =============
Accumulated net investment income/(loss).................... -- --
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
21
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE
MORTGAGE (ARM) FUND ULTRA SHORT FUND
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income........... $ 73,324,083 $ 77,313,422 $ 5,652,745 $ 4,648,818
Net realized gains (losses) from
investments.................. (9,290,088) (9,360,230) (825,070) (448,262)
Change in unrealized
appreciation/depreciation
from investments............. 3,530,500 (2,967,734) 30,025 888,151
--------------- --------------- ------------- -------------
Change in net assets
resulting from
operations................. 67,564,495 64,985,458 4,857,700 5,088,707
--------------- --------------- ------------- -------------
Dividends paid to stockholders:
From net investment income...... (87,074,818) (100,452,092) (6,485,357) (6,019,913)
--------------- --------------- ------------- -------------
Total dividends paid to
stockholders............... (87,074,818) (100,452,092) (6,485,357) (6,019,913)
--------------- --------------- ------------- -------------
Capital Transactions:
Proceeds from sale of shares.... 2,244,424,388 4,920,698,520 185,331,981 202,953,038
Shares issued to stockholders in
reinvestment of dividends.... 50,798,140 64,449,754 3,213,793 3,481,425
Cost of shares repurchased...... (3,555,626,724) (3,742,718,116) (147,237,653) (240,951,312)
--------------- --------------- ------------- -------------
Change in net assets from
capital transactions....... (1,260,404,196) 1,242,430,158 41,308,121 (34,516,849)
--------------- --------------- ------------- -------------
Change in net assets......... (1,279,914,519) 1,206,963,524 39,680,464 (35,448,055)
Net Assets:
Beginning of year................. 4,596,938,902 3,389,975,378 251,668,049 287,116,104
--------------- --------------- ------------- -------------
End of year....................... $ 3,317,024,383 $ 4,596,938,902 $ 291,348,513 $ 251,668,049
=============== =============== ============= =============
Accumulated net investment
income/(loss)..................... $ (1,090,971) $ (2,683,640) $ 10,408 $ 7,706
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHORT U.S. GOVERNMENT INTERMEDIATE MORTGAGE U.S. GOVERNMENT
FUND FUND MORTGAGE FUND
- -----------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2004 2003 2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------
$ 4,605,342 $ 5,196,913 $ 9,349,175 $ 8,609,314 $ 6,669,616 $ 5,727,534
517,417 449,599 (1,442,590) (927,235) (2,022,919) (1,141,229)
(1,221,548) (2,071,854) 763,779 (3,511,347) 3,133,197 (2,323,780)
------------- ------------- ------------ ------------- ------------ -------------
3,901,211 3,574,658 8,670,364 4,170,732 7,779,894 2,262,525
------------- ------------- ------------ ------------- ------------ -------------
(5,009,529) (5,865,998) (10,181,481) (10,605,928) (7,450,517) (6,600,815)
------------- ------------- ------------ ------------- ------------ -------------
(5,009,529) (5,865,998) (10,181,481) (10,605,928) (7,450,517) (6,600,815)
------------- ------------- ------------ ------------- ------------ -------------
37,505,664 184,063,440 6,536,412 339,487,102 14,762,850 241,251,413
2,867,566 3,229,364 4,241,126 4,470,067 5,105,098 4,022,730
(118,618,032) (114,566,189) (58,816,046) (230,308,881) (57,895,104) (130,524,325)
------------- ------------- ------------ ------------- ------------ -------------
(78,244,802) 72,726,615 (48,038,508) 113,648,288 (38,027,156) 114,749,818
------------- ------------- ------------ ------------- ------------ -------------
(79,353,120) 70,435,275 (49,549,625) 107,213,092 (37,697,779) 110,411,528
232,605,208 162,169,933 347,857,665 240,644,573 204,565,734 94,154,206
------------- ------------- ------------ ------------- ------------ -------------
$ 153,252,088 $ 232,605,208 $298,308,040 $ 347,857,665 $166,867,955 $ 204,565,734
============= ============= ============ ============= ============ =============
$ (8,832) $ (21,680) $ (2,974) $ 9,957 $ (16,427) $ 5,917
</Table>
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
MONEY MARKET FUND CLASS I SHARES
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income..................... 0.0104 0.0096 0.0152 0.0441 0.0578
Net realized losses from investments...... -- -- -- -- --(a)
-------- -------- -------- -------- --------
Total from investment operations..... 0.0104 0.0096 0.0152 0.0441 0.0578
-------- -------- -------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income............. (0.0104) (0.0096) (0.0152) (0.0441) (0.0578)
-------- -------- -------- -------- --------
Net asset value, end of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................................ 1.04% 0.97% 1.54% 4.50% 5.93%
Ratios/Supplemental data:
Net assets, end of year (in 000's)........ $ 31,883 $ 40,737 $ 30,571 $ 45,491 $ 48,202
Ratio of expenses to average net assets... 0.11% 0.18% 0.26% 0.30% 0.30%
Ratio of net investment income to average
net assets............................. 1.04% 0.96% 1.53% 4.31% 5.74%
Ratio of expenses to average net
assets*................................ 0.41% 0.39% 0.41% 0.45% 0.45%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Net realized losses per share were less than $0.00005.
See notes to financial statements.
24
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
MONEY MARKET FUND CLASS D SHARES
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
DECEMBER 19,
YEAR ENDED OCTOBER 31, 1999(A) TO
-------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................... 0.0054 0.0046 0.0104 0.0397 0.0466
Net realized losses from investments.... -- -- -- -- --(b)
-------- -------- -------- -------- --------
Total from investment operations... 0.0054 0.0046 0.0104 0.0397 0.0466
-------- -------- -------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income........... (0.0054) (0.0046) (0.0104) (0.0397) (0.0466)
-------- -------- -------- -------- --------
Net asset value, end of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return.............................. 0.54% 0.47% 1.05% 4.04% 4.74%(c)
Ratios/Supplemental data:
Net assets, end of period (in 000's).... $ 19,089 $ 23,525 $ 15,039 $ 8,787 $ 3,388
Ratio of expenses to average net
assets............................... 0.61% 0.67% 0.75% 0.75% 0.75%(d)
Ratio of net investment income to
average net assets................... 0.54% 0.45% 1.04% 3.46% 5.66%(d)
Ratio of expenses to average net
assets*.............................. 0.86% 0.84% 0.86% 0.91% 0.94%(d)
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Net realized losses per share was less than $0.00005.
(c) Represents the total return for the period from December 19, 1999 to October
31, 2000.
(d) Annualized.
See notes to financial statements.
25
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2004 2003 2002 2001+ 2000
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.... $ 9.88 $ 9.95 $ 9.97 $ 9.86 $ 9.84
---------- ---------- ---------- ---------- --------
Income from investment operations:
Net investment income............... 0.1824 0.1778 0.2947 0.5319 0.6048
Net realized and unrealized gains
(losses) from investments........ (0.0070) (0.0230) 0.0124 0.1386 0.0233
---------- ---------- ---------- ---------- --------
Total from investment
operations.................. 0.1754 0.1548 0.3071 0.6705 0.6281
---------- ---------- ---------- ---------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income....... (0.2254) (0.2248) (0.3271) (0.5605) (0.6129)
---------- ---------- ---------- ---------- --------
Change in net asset value............. (0.05) (0.07) (0.02) 0.11 0.02
---------- ---------- ---------- ---------- --------
Net asset value, end of year.......... $ 9.83 $ 9.88 $ 9.95 $ 9.97 $ 9.86
========== ========== ========== ========== ========
Total return.......................... 1.79% 1.57% 3.13% 6.98% 6.63%
Ratios/Supplemental data:
Net assets, end of year (in
000's)........................... $3,317,024 $4,596,939 $3,389,975 $2,064,844 $681,652
Ratio of expenses to average net
assets........................... 0.44% 0.44% 0.45% 0.49% 0.48%
Ratio of net investment income to
average net assets............... 1.92% 1.72% 2.91% 5.37% 6.22%
Ratio of expenses to average net
assets*.......................... 0.72% 0.71% 0.75% 0.79% 0.78%
Portfolio turnover rate............. 50% 117% 107% 72% 67%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
+ Net investment income is based on average shares outstanding through the
period.
See notes to financial statements.
26
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31, NOVEMBER 14,
----------------------- 2001(A) TO
2004 2003 OCTOBER 31, 2002
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period........................ $ 9.92 $ 9.95 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income..................................... 0.1985 0.1601 0.2204
Net realized and unrealized gains (losses) from
investments............................................ (0.0217) 0.0242 0.0058
-------- -------- --------
Total from investment operations..................... 0.1768 0.1843 0.2262
-------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income............................. (0.2268) (0.2143) (0.2762)
-------- -------- --------
Change in net asset value................................... (0.05) (0.03) (0.05)
-------- -------- --------
Net asset value, end of period.............................. $ 9.87 $ 9.92 $ 9.95
======== ======== ========
Total return................................................ 1.80% 1.87% 2.29%(b)
Ratios/Supplemental data:
Net assets, end of period (in 000's)...................... $291,349 $251,668 $287,116
Ratio of expenses to average net assets................... 0.47% 0.47% 0.50%(c)
Ratio of net investment income to average net assets...... 2.00% 1.66% 2.11%(c)
Ratio of expenses to average net assets*.................. 0.77% 0.77% 0.80%(c)
Portfolio turnover rate................................... 118% 126% 127%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
27
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.......... $ 10.68 $ 10.78 $ 10.75 $ 10.34 $ 10.36
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income..................... 0.2640 0.2738 0.3512 0.5652 0.5973
Net realized and unrealized gains (losses)
from investments....................... (0.0415) (0.0686) 0.0674 0.4086 (0.0240)
-------- -------- -------- -------- --------
Total from investment operations..... 0.2225 0.2052 0.4186 0.9738 0.5733
-------- -------- -------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income............. (0.2925) (0.3052) (0.3886) (0.5638) (0.5976)
-------- -------- -------- -------- --------
Change in net asset value................... (0.07) (0.10) 0.03 0.41 (0.02)
-------- -------- -------- -------- --------
Net asset value, end of year................ $ 10.61 $ 10.68 $ 10.78 $ 10.75 $ 10.34
======== ======== ======== ======== ========
Total return................................ 2.11% 1.92% 3.98% 9.66% 5.77%
Ratios/Supplemental data:
Net assets, end of year (in 000's)........ $153,252 $232,605 $162,170 $191,632 $ 96,098
Ratio of expenses to average net assets... 0.48% 0.47% 0.49% 0.51% 0.51%
Ratio of net investment income to average
net assets............................. 2.50% 2.47% 3.35% 5.25% 5.79%
Portfolio turnover rate................... 152% 72% 75% 54% 138%
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
28
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.......... $ 9.62 $ 9.79 $ 9.83 $ 9.33 $ 9.33
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income..................... 0.2892 0.2525 0.4155 0.5675 0.5754
Net realized and unrealized gains (losses)
from investments....................... (0.0233) (0.1156) (0.0213) 0.4861 0.0051
-------- -------- -------- -------- --------
Total from investment operations..... 0.2659 0.1369 0.3942 1.0536 0.5805
-------- -------- -------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income............. (0.3159) (0.3069) (0.4342) (0.5536) (0.5795)
-------- -------- -------- -------- --------
Change in net asset value................... (0.05) (0.17) (0.04) 0.50 0.00
-------- -------- -------- -------- --------
Net asset value, end of year................ $ 9.57 $ 9.62 $ 9.79 $ 9.83 $ 9.33
======== ======== ======== ======== ========
Total return................................ 2.81% 1.41% 4.13% 11.59% 6.47%
Ratios/Supplemental data:
Net assets, end of year (in 000's)........ $298,308 $347,858 $240,645 $204,891 $ 90,768
Ratio of expenses to average net assets... 0.47% 0.47% 0.47% 0.50% 0.51%
Ratio of net investment income to average
net assets............................. 3.02% 2.52% 4.28% 5.74% 6.25%
Ratio of expenses to average net
assets*................................ 0.57% 0.57% 0.57% 0.60% 0.61%
Portfolio turnover rate................... 148% 98% 54% 47% 110%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
See notes to financial statements.
29
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
U.S. GOVERNMENT MORTGAGE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of year.......... $ 10.56 $ 10.77 $ 10.83 $ 10.27 $ 10.26
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income..................... 0.3875 0.3689 0.5116 0.6381 0.6646
Net realized and unrealized gains (losses)
on investments......................... 0.0795 (0.1511) (0.0377) 0.5590 0.0109
-------- -------- -------- -------- --------
Total from investment operations..... 0.4670 0.2178 0.4739 1.1971 0.6755
-------- -------- -------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income............. (0.4370) (0.4278) (0.5339) (0.6371) (0.6682)
-------- -------- -------- -------- --------
Change in net asset value................... 0.03 (0.21) (0.06) 0.56 0.01
-------- -------- -------- -------- --------
Net asset value, end of year................ $ 10.59 $ 10.56 $ 10.77 $ 10.83 $ 10.27
======== ======== ======== ======== ========
Total return................................ 4.52% 2.04% 4.54% 11.99% 6.90%
Ratios/Supplemental data:
Net assets, end of year (in 000's)........ $166,868 $204,566 $ 94,154 $105,713 $ 71,449
Ratio of expenses to average net assets... 0.47% 0.47% 0.47% 0.50% 0.52%
Ratio of net investment income to average
net assets............................. 3.70% 3.39% 4.80% 6.09% 6.53%
Portfolio turnover rate................... 171% 102% 82% 86% 127%
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
30
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
Asset Management Fund (the "Trust") was reorganized as a Delaware Statutory
Trust on September 30, 1999, and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as a diversified open-end management
company. As of October 31, 2004, the Trust is authorized to issue an unlimited
number of shares in six separate Funds: the Money Market Fund, the Adjustable
Rate Mortgage (ARM) Fund, the Ultra Short Fund, the Short U.S. Government Fund,
the Intermediate Mortgage Fund and the U.S. Government Mortgage Fund (referred
to individually as a "Fund" and collectively as the "Funds"). Each of the Funds,
except the Money Market Fund, offers a single class of shares. The Money Market
Fund is authorized to sell two classes of shares, namely, Class I Shares and
Class D Shares. Each Class I and Class D Share of the Money Market Fund
represents identical interests in the Fund and has the same rights except that
(i) Class D Shares bear a higher distribution fee, which will cause Class D
Shares to have a higher expense ratio and to pay lower dividends than those
related to Class I Shares; (ii) certain other class specific expenses will be
borne solely by the class to which such expenses are attributable; and (iii)
each class has exclusive voting rights with respect to the matters relating to
its own distribution arrangements.
Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Trust. In addition, in the normal course of business, the Trust
enters into contracts with its vendors and others that provide general
indemnification. Each Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against a Fund.
However, based on experience, the Trust expects the risk of loss to be remote.
A. Significant accounting policies are as follows:
SECURITY VALUATION
Money Market Fund:
Fund securities are valued under the amortized cost method, which approximates
current market value. Under this method, securities are valued at cost when
purchased and thereafter a constant proportionate amortization of any discount
or premium is recorded until maturity of the security. The Fund seeks to
maintain net asset value per share at $1.00.
Adjustable Rate Mortgage (ARM) Fund, Ultra Short Fund, Short U.S. Government
Fund, Intermediate Mortgage Fund, and U.S. Government Mortgage Fund:
As of October 31, 2004, substantially all of the Funds' investments are fair
valued using matrix pricing methods. These matrix pricing methods, determined by
either an independent pricing service or the Adviser, incorporate market
quotations, prices provided directly by market makers and take into
consideration such factors as security prices, yields, maturities, and ratings.
Additionally, upon a significant valuation event, securities can be valued at
fair value by the Adviser, under procedures reviewed by the Board of Trustees.
Short-term instruments maturing within 60 days of the valuation date may be
valued based upon their amortized cost.
REPURCHASE AGREEMENTS
Repurchase agreements collateralized by obligations of the U.S. government or
its agencies may be purchased from primary government securities dealers or the
custodian bank, subject to the seller's agreement to repurchase them at an
agreed upon date and price. Each Fund will always receive as collateral
instruments whose market value, including accrued interest, will be at least
equal to 100% of the dollar amount
31
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
invested by the Fund in each agreement, and each Fund will make payment for such
instruments only upon their physical delivery to, or evidence of their book
entry transfer to the account of, the Fund's custodian. If the counter-party
defaults, and the fair value of the collateral declines, realization of the
collateral by the Funds may be delayed or limited.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED-DELIVERY BASIS
Each Fund, except the Money Market Fund, may purchase securities on a
when-issued or delayed-delivery basis. In when-issued transactions, securities
are bought or sold during the period between the announcement of an offering and
the issuance and payment date of the securities. When securities are purchased
on a delayed-delivery basis, the price of the securities is fixed at the time
the commitment to purchase is made, but settlement may take place at a future
date. By the time of delivery, securities purchased on a when-issued or
delayed-delivery basis may be valued at less than the purchase price. At the
time when-issued and delayed-delivery securities are purchased, the Fund must
set aside funds in a segregated account to pay for the purchase, and until
acquisition, the Fund will not earn any income on the securities that it
purchased.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly. Net
short-term and long-term capital gains, if any, are declared and paid annually.
FEDERAL TAXES
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify as a regulated investment company and to make the requisite
distributions to the stockholders, which will be sufficient to relieve each Fund
from all or substantially all Federal income and excise taxes.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
OTHER
Investment transactions are accounted for on the trade date, interest income
is recorded on the accrual basis, amortization and accretion is recognized based
on the anticipated effective maturity date, and the cost of investments sold is
determined by use of the specific identification method for both financial
reporting and income tax purposes. Paydown gains and losses on mortgage- and
asset-backed securities are recorded as adjustments to interest income in the
Statement of Operations.
B. Shay Assets Management, Inc. (SAMI) serves the Trust as investment adviser
(the "Adviser"). The Adviser is a wholly-owned subsidiary of Shay Investment
Services, Inc. (SISI), which is controlled by Rodger D. Shay, the Chairman of
the Board of Trustees of the Trust, and Rodger D. Shay, Jr., a member of the
Board of Trustees and the President of Shay Financial Services, Inc.
As compensation for investment advisory services, the Fund pays an investment
advisory fee monthly based upon an annual percentage of the average daily net
assets of each Fund as follows:
The investment advisory fee rate for the Money Market Fund is .15% of the
first $500 million, .125% of the next $500 million, and .10% of such net assets
in excess of $1 bil-
32
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
lion. The Adviser is currently voluntarily waiving its entire fee. As of October
31, 2004, the assets for the Fund include a waived investment advisory fee
receivable in the amount of $6,953.
The investment advisory fee rate for the Adjustable Rate Mortgage (ARM) Fund
is .45% of the first $3 billion, .35% of the next $2 billion, and .25% of such
net assets in excess of $5 billion. The Adviser is currently voluntarily waiving
a portion of its fee so that the Fund pays .25% of average daily net assets. As
of October 31, 2004, the assets for the Fund include a waived investment
advisory fee receivable in the amount of $498,378.
The investment advisory fee rate for the Ultra Short Fund is .45% of the
average daily net assets. The Adviser is currently voluntarily waiving a portion
of its fee so that the Fund pays .25% of average daily net assets. As of October
31, 2004, the assets for the Fund include a waived investment advisory fee
receivable in the amount of $50,622.
The investment advisory fee rate for each of the Short U.S. Government Fund
and the U.S. Government Mortgage Fund, computed separately, is .25% of the first
$500 million, .175% of the next $500 million, .125% of the next $500 million,
and .10% of such net asset in excess of $1.5 billion.
The investment advisory fee rate for the Intermediate Mortgage Fund is .35% of
the first $500 million, .275% of the next $500 million, .20% of the next $500
million, and .10% of such net assets in excess of $1.5 billion. The Adviser is
currently voluntarily waiving a portion of its fee so that the Fund pays .25% of
average daily net assets. As of October 31, 2004, the assets for the Fund
include a waived investment advisory fee receivable in the amount of $25,249.
The Adviser has agreed to reduce or waive (but not below zero) its advisory
fees charged to the Money Market Fund, the Short U.S. Government Fund, the
Intermediate Mortgage Fund and the U.S. Government Mortgage Fund, to the extent
that the daily ratio of operating expenses to average daily net assets of each
Fund exceeds .75%.
Shay Financial Services, Inc. (SFSI) serves the Trust as distributor (the
"Distributor"). The Distributor is a wholly-owned subsidiary of SISI, which is
controlled by Rodger D. Shay, the Chairman of the Board of Trustees of the Trust
and Rodger D. Shay, Jr., a member of the Board of Trustees and the President of
Shay Financial Services, Inc.
As compensation for distribution services, the Trust pays the Distributor a
distribution fee monthly in accordance with the distribution plan adopted by the
Trust, pursuant to Rule 12b-1 under the 1940 Act, based upon an annual
percentage of the average daily net assets of each fund as follows:
The distribution fee rate for each of the Money Market Fund Class I Shares and
Short U.S. Government Fund is based upon an annual percentage of the combined
average daily net assets of both funds and is as follows: .15% of the first $500
million, .125% of the next $500 million, .10% of the next $1 billion, and .075%
of such combined net assets in excess of $2 billion. For the fiscal year ended
October 31, 2004, the Distributor voluntarily waived its entire 12b-1 fee for
the Class I Shares of the Money Market Fund. The Money Market distribution fee
waiver amounted to $54,146 for Class I Shares for the year ended October 31,
2004. Effective November 1, 2004, the Distributor is waiving a portion of its
fee so that the Money Market Fund Class I Shares pays .05% of average daily net
assets. The assets for the Money Market Fund include a waived distribution fee
receivable in the amount of $4,472 for the Money Market Fund Class I Shares as
of October 31, 2004.
33
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
The distribution fee rate for the Money Market Class D Shares is .60% of
average daily net assets. The Distributor is currently voluntarily waiving a
portion of the 12b-1 fees so that Total Fund Operating Expenses do not exceed
0.75% of average daily net assets. The Money Market distribution fee waiver
amounted to $20,521 for Class D Shares for the year ended October 31, 2004. The
assets for the Money Market Fund include a waived distribution fee receivable in
the amount of $1,654 for the Money Market Fund Class D Shares as of October 31,
2004.
The distribution fee rate for each of the Adjustable Rate Mortgage (ARM) Fund
and the Ultra Short Fund, computed separately, is .25% of average daily net
assets. The Distributor is currently voluntarily waiving a portion of its fee so
that the Adjustable Rate Mortgage (ARM) Fund and the Ultra Short Fund each pay
..15% of average daily net assets. The assets for the Funds include a waived
distribution fee receivable in the amount of $284,195 and $25,311, respectively,
as of October 31, 2004.
The distribution fee rate for each of the Intermediate Mortgage Fund and the
U.S. Government Mortgage Fund, computed separately, is as follows: .15% of the
first $500 million, .125% of the next $500 million, .10% of the next $500
million, and .075% of such net assets in excess of $1.5 billion.
BISYS Fund Services Ohio, Inc. ("BISYS, Ohio"), serves the Trust as
administrator (the "Administrator"), fund accountant and transfer agent (the
"Transfer Agent"). BISYS, Ohio is a subsidiary of The BISYS Group, Inc. The fee
rate for BISYS, Ohio's services for each of the Funds, computed separately, is
as follows: .03% of the first $1 billion, .02% of the next $1 billion, and .01%
of such net assets in excess of $2 billion, with a minimum annual fee of
$393,200 for the Trust. BISYS, Ohio also receives a $15.00 per account per fund
annual processing fee.
34
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
C. Transactions in shares of the Trust for the periods ended October 31, 2004
and October 31, 2003, were as follows:
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET FUND
------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
- ----------------------------------------------------------------------------------------------------
Share transactions Class I:
Sale of shares............................................ 212,174,352 303,435,935
Shares issued to stockholders in reinvestment dividends... 337,606 321,764
Shares repurchased........................................ (221,365,484) (293,591,768)
------------ ------------
Net increase (decrease)................................... (8,853,526) 10,165,931
Shares outstanding
Beginning of period.................................... 40,747,839 30,581,908
------------ ------------
End of period.......................................... 31,894,313 40,747,839
============ ============
Share transactions Class D:
Sale of shares............................................ 385,481,528 228,413,673
Shares issued to stockholders in reinvestment dividends... 47,207 42,261
Shares repurchased........................................ (389,965,369) (219,969,777)
------------ ------------
Net increase.............................................. (4,436,634) 8,486,157
Shares outstanding
Beginning of period.................................... 23,525,696 15,039,539
------------ ------------
End of period.......................................... 19,089,062 23,525,696
============ ============
</Table>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE ULTRA SHORT
MORTGAGE (ARM) FUND FUND
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003 OCTOBER 31, 2004 OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------
Share transactions:
Sale of shares................... 227,675,417 494,903,553 18,676,184 20,377,204
Shares issued to stockholders in
reinvestment of dividends..... 5,149,608 6,486,942 324,470 349,592
Shares repurchased............... (360,583,381) (376,937,871) (14,857,663) (24,210,819)
------------ ------------ ----------- -----------
Net increase (decrease).......... (127,758,356) 124,452,624 4,142,991 (3,484,023)
Shares outstanding
Beginning of period........... 465,065,263 340,612,639 25,363,254 28,847,277
------------ ------------ ----------- -----------
End of period................. 337,306,907 465,065,263 29,506,245 25,363,254
============ ============ =========== ===========
</Table>
- --------------------------------------------------------------------------------
35
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHORT U.S. INTERMEDIATE MORTGAGE
GOVERNMENT FUND FUND
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003 OCTOBER 31, 2004 OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------
Share transactions:
Sale of shares.................... 3,507,202 17,098,986 678,786 34,781,632
Shares issued to stockholders in
reinvestment of dividends...... 269,378 300,342 442,694 459,440
Shares repurchased................ (11,118,104) (10,660,144) (6,108,666) (23,684,181)
----------- ----------- ----------- -----------
Net increase (decrease)........... (7,341,524) 6,739,184 (4,987,186) 11,556,891
Shares outstanding
Beginning of period............ 21,782,871 15,043,687 36,145,665 24,588,774
----------- ----------- ----------- -----------
End of period.................. 14,441,347 21,782,871 31,158,479 36,145,665
=========== =========== =========== ===========
</Table>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MORTGAGE FUND
-----------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
- -------------------------------------------------------------------------------------------------
Share transactions:
Sale of shares............................................ 1,395,535 22,398,837
Shares issued to stockholders in reinvestment of
dividends.............................................. 484,542 375,997
Shares repurchased........................................ (5,487,343) (12,146,643)
----------- -----------
Net increase (decrease)................................... (3,607,266) 10,628,191
Shares outstanding
Beginning of period.................................... 19,367,358 8,739,167
----------- -----------
End of period.......................................... 15,760,092 19,367,358
=========== ===========
</Table>
- --------------------------------------------------------------------------------
36
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
D. At October 31, 2004, Net Assets consisted of the following:
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE SHORT U.S. U.S. GOVERNMENT
MONEY MARKET MORTGAGE ULTRA SHORT GOVERNMENT INTERMEDIATE MORTGAGE
FUND (ARM) FUND FUND FUND MORTGAGE FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
Capital.............. $50,986,576 $3,369,092,872 $294,935,404 $154,796,447 $303,748,379 $170,294,320
Accumulated net
investment
income/(loss)...... -- (1,090,971) 10,408 (8,832) (2,974) (16,427)
Accumulated net
realized
gain/(loss)........ (14,744) (69,092,890) (4,851,996) (1,981,464) (8,434,705) (8,053,221)
Net unrealized
appreciation/
(depreciation) of
investments........ -- 18,115,372 1,254,697 445,937 2,997,340 4,643,283
----------- -------------- ------------ ------------ ------------ ------------
$50,971,832 $3,317,024,383 $291,348,513 $153,252,088 $298,308,040 $166,867,955
=========== ============== ============ ============ ============ ============
</Table>
- --------------------------------------------------------------------------------
E. At October 31, 2004, liabilities for the Funds included:
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE SHORT U.S. INTERMEDIATE U.S. GOVERNMENT
MONEY MARKET MORTGAGE ULTRA SHORT GOVERNMENT MORTGAGE MORTGAGE
FUND (ARM) FUND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------
Investment advisory
fee payable........ -- 710,498 63,277 32,495 63,122 35,314
Administration fee
payable............ 250 10,334 1,442 754 1,467 820
Distribution fee
payable............ 8,271 426,303 37,967 19,497 37,874 21,188
Distributions
payable............ 65,471 7,357,564 715,446 419,431 989,520 667,257
Securities Purchased
Payables........... -- -- -- -- -- 9,935,069
Other liabilities.... 10,964 345,729 37,493 24,625 38,665 24,387
</Table>
- --------------------------------------------------------------------------------
37
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
F. In June 2004, the Financial Accounting Standards Board's Emerging Issues Task
Force issued EITF 03-01, 'The Meaning of Other-Than-Temporary Impairment and Its
application to Certain Investments'. The EITF contains guidance on the
determination of whether an investment is considered impaired and the
appropriate recording of any impairment loss. On September 30, 2004, the FASB
delayed the effective date of EITF 03-01 and extended the comment period for
certain aspects of the guidance. Although the EITF is not expected to have a
significant impact on the Funds' financial statements, the guidance as issued
could affect the Funds' Shareholders' financial reporting of investments in each
of the AMF Funds. At this time, it is unclear how this may impact a
Shareholder's decisions surrounding investments in these Funds.
G. FEDERAL INCOME TAX INFORMATION:
It is the policy of each Fund to continue to qualify as a regulated investment
company by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code, and
to make distributions of net investment income and net realized capital gains
sufficient to relieve it from all, or substantially all, federal income taxes.
The tax characteristics of distributions paid to shareholders during the fiscal
years ended October 31, 2004 and 2003 were as follows:
- --------------------------------------------------------------------------------
<Table>
<Caption>
DISTRIBUTIONS TOTAL
PAID FROM TOTAL TAXABLE DISTRIBUTIONS
2004 ORDINARY INCOME DISTRIBUTIONS PAID*
- ---------------------------------------------------------------------------------------------------------
Money Market Fund..................................... $ 459,677 $ 459,677 $ 459,677
ARM Fund.............................................. 88,027,977 88,027,977 88,027,977
Ultra Short Fund...................................... 6,224,669 6,224,669 6,224,669
Short U.S. Government Fund............................ 5,102,598 5,102,598 5,102,598
Intermediate Mortgage Fund............................ 10,023,237 10,023,237 10,023,237
U.S. Government Mortgage Fund......................... 7,396,992 7,396,992 7,396,992
</Table>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
DISTRIBUTIONS TOTAL
PAID FROM TOTAL TAXABLE DISTRIBUTIONS
2003 ORDINARY INCOME DISTRIBUTIONS PAID*
- ---------------------------------------------------------------------------------------------------------
Money Market Fund..................................... $ 436,473 $ 436,473 $ 436,473
ARM Fund.............................................. 100,691,032 100,691,032 100,691,032
Ultra Short Fund...................................... 6,161,647 6,161,647 6,161,647
Short U.S. Government Fund............................ 5,829,192 5,829,192 5,829,192
Intermediate Mortgage Fund............................ 10,619,213 10,619,213 10,619,213
U.S. Government Mortgage Fund......................... 6,375,143 6,375,143 6,375,143
</Table>
- --------------------------------------------------------------------------------
* Total distributions paid differ from the Statement of Changes in Net Assets
because dividends are recognized when actually paid for tax purposes.
38
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
As of October 31, 2004 the components of accumulated earnings/(deficit) on a tax
basis was as follows:
- --------------------------------------------------------------------------------
<Table>
<Caption>
TOTAL
UNDISTRIBUTED ACCUMULATED UNREALIZED ACCUMULATED
ORDINARY ACCUMULATED DISTRIBUTIONS CAPITAL AND APPRECIATION/ EARNINGS/
INCOME EARNINGS PAYABLE OTHER LOSSES** (DEPRECIATION)*** DEFICIT)
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market Fund.......... $ 65,471 $ 65,471 $ (65,471) $ (14,744) -- $ (14,744)
ARM Fund................... 6,266,593 6,266,593 (7,357,564) (69,092,890) 18,115,372 (52,068,489)
Ultra Short Fund........... 725,855 725,855 (715,446) (4,807,712) 1,210,412 (3,586,891)
Short U.S. Government
Fund..................... 410,599 410,599 (419,431) (1,966,497) 430,970 (1,544,359)
Intermediate Mortgage
Fund..................... 986,545 986,545 (989,520) (8,434,704) 2,997,340 (5,440,339)
U.S. Government Mortgage
Fund..................... 650,831 650,831 (667,257) (7,916,501) 4,506,562 (3,426,365)
</Table>
- --------------------------------------------------------------------------------
** For tax purposes at October 31, 2004, the following Funds had capital loss
carryforwards. All losses are available to offset future realized capital
gains, if any.
<Table>
<Caption>
FUND AMOUNT EXPIRES
- -----------------------------------------------------------------------------------
Money Market Fund........................................... $ 14,744 2008
ARM Fund.................................................... 1,301,928 2006
ARM Fund.................................................... 4,959,047 2007
ARM Fund.................................................... 1,824,665 2008
ARM Fund.................................................... 2,995,058 2010
ARM Fund.................................................... 33,378,700 2011
ARM Fund.................................................... 24,633,492 2012
Ultra Short Fund............................................ 1,342,312 2010
Ultra Short Fund............................................ 1,849,300 2011
Ultra Short Fund............................................ 1,616,100 2012
Short U.S. Government Fund.................................. 642,561 2007
Short U.S. Government Fund.................................. 1,193,651 2008
Short U.S. Government Fund.................................. 130,285 2011
Intermediate Mortgage Fund.................................. 817,175 2007
Intermediate Mortgage Fund.................................. 2,029,049 2008
Intermediate Mortgage Fund.................................. 312,894 2010
Intermediate Mortgage Fund.................................. 3,013,622 2011
Intermediate Mortgage Fund.................................. 2,261,964 2012
U.S. Government Mortgage Fund............................... 124,825 2005
U.S. Government Mortgage Fund............................... 802,809 2007
U.S. Government Mortgage Fund............................... 2,276,740 2008
U.S. Government Mortgage Fund............................... 181,530 2010
U.S. Government Mortgage Fund............................... 1,808,782 2011
U.S. Government Mortgage Fund............................... 2,721,815 2012
</Table>
- --------------------------------------------------------------------------------
***The differences between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to: tax deferral of
losses on wash sales and the difference between book and tax amortization
methods for premium and market discounts.
39
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
H. For the year ended October 31, 2004, purchases and proceeds from
sales/maturities of securities, other than short-term investments, were as
follows:
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE SHORT U.S.
MORTGAGE (ARM) ULTRA SHORT GOVERNMENT INTERMEDIATE U.S. GOVERNMENT
FUND FUND FUND MORTGAGE FUND MORTGAGE FUND
- ------------------------------------------------------------------------------------------------------------
Purchases.............. $1,773,144,335 $367,916,859 $270,266,429 $436,800,952 $293,061,348
============== ============ ============ ============ ============
Sales and Maturities... $2,898,365,566 $317,600,094 $340,071,959 $452,001,463 $290,294,404
============== ============ ============ ============ ============
</Table>
- --------------------------------------------------------------------------------
40
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders
of the Asset Management Fund:
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Money Market Fund, Adjustable Rate Mortgage (ARM) Fund, Ultra Short Fund,
Short U.S. Government Fund, Intermediate Mortgage Fund, and the U.S. Government
Mortgage Fund (collectively referred to as the "Funds") at October 31, 2004, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
December 27, 2004
41
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
(UNAUDITED)
TRUSTEES AND OFFICERS OF ASSET MANAGEMENT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
POSITION(S) HELD WITH PORTFOLIOS IN OTHER
TRUST, LENGTH OF TIME PRINCIPAL OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND AGE SERVED AND TERM OF OFFICE DURING PAST 5 YEARS OVERSEEN HELD
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Richard M. Amis Trustee since 1997. President, First Federal Community 6 First Financial Trust
630 Clarksville Street Indefinite Term of Office Bank since 1984; Director, First Company
Paris, TX 75460 Financial Trust Company since 1993
Age: 54
Arthur G. De Russo Trustee since 1993. Retired; Chief Executive Officer, 6 None
5397 S.E. Major Way Indefinite Term of Office Eastern Financial Federal Credit
Stuart, FL 34997 Union Trust Co., Inc. from 1968 to
Age: 83 1992
David F. Holland Trustee since 1993 and Chairman of the Board, Chief 6 New England College
17 New England Executive Park from 1988 to 1989. Executive Officer and President of of Finance
Burlington, MA 01803 Indefinite Term of Office BostonFed Bancorp Inc. since 1995
Age: 63
Gerald J. Levy Vice Chairman of the Board Chairman and Director, Guaranty 6 FISERV, Inc.;
4000 W. Brown Deer Road and Trustee since 1982. Bank, F.S.B. since 1984 Republic Mortgage
Milwaukee, WI 53209 Indefinite Term of Office Insurance Company
Age: 72
William A. McKenna, Jr. Trustee since 2002. Retired; Chairman and Chief 7 Asset Management Fund
71-02 Forest Avenue Indefinite Term of Office Executive Officer Ridgewood Large Cap Equity
Ridgewood, NY 11385 Savings Bank from 1992 to 2003 Institutional Fund,
Age: 68 Inc.; RSI Retirement
Trust; St. Joseph's
College; St.
Vincent's Services;
Boys Hope Girls Hope;
Calvary Hospital
Fund; Retirement
System Group, Inc.
INTERESTED TRUSTEES(1)
Rodger D. Shay(2) Chairman of the Board Chairman and Director of Shay 6 Horizon Bank, FSB
1000 Brickell Avenue since 1993 and Trustee Assets Management, Inc. since 1997
Miami, FL 33131 from 1985 to 1990.
Age: 68 Indefinite Term of Office
Rodger D. Shay, Jr.(2) Trustee since 2002. President and Chief Executive 6 Family Financial
1000 Brickell Avenue Indefinite Term of Office Officer of Shay Financial Holdings, LLC; First
Miami, FL 33131 Services, Inc. since 1997 Financial Bank and
Age: 45 Trust
</Table>
- ---------------
(1) A trustee is an "interested person" of the Trust under the 1940 Act because
he holds certain positions with the Trust's Distributor and/or Investment
Adviser and because of his financial interest in Shay Investment Services,
Inc., parent company of the Trust's Investment Adviser, Shay Assets
Management, Inc., and Distributor, Shay Financial Services, Inc.
(2) Rodger D. Shay, Jr., Trustee, is the son of Rodger D. Shay, Sr., Chairman of
the Board of Trustees and Trustee.
42
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
(UNAUDITED)
TRUSTEES AND OFFICERS OF ASSET MANAGEMENT FUND (CONTINUED)
<Table>
<Caption>
NUMBER OF
POSITION(S) HELD WITH PORTFOLIOS IN OTHER
TRUST, LENGTH OF TIME PRINCIPAL OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND AGE SERVED AND TERM OF OFFICE DURING PAST 5 YEARS OVERSEEN HELD
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Edward E. Sammons, Jr. President since 1998. Term President of Shay Assets 6 None
230 West Monroe Street of Office Expires 2005 Management, Inc. since 1997
Chicago, IL 60606
Age: 65
Robert T. Podraza Vice President and Vice President and Chief 6 None
1000 Brickell Avenue Assistant Treasurer since Compliance Officer of Shay
Miami, FL 33131 1998. Term of Office Financial Services, Inc. since
Age: 60 Expires 2005 1990 and 1997, respectively
Trent M. Statczar Treasurer since 2002. Term Financial Services Vice President 7 None
3435 Stelzer Road of Office Expires 2005 since 2003 and prior thereto
Columbus, OH 43219 Director and Financial Services
Age: 33 Manager, BISYS Investment Services
Ohio, Inc.
Daniel K. Ellenwood Secretary since 1998. Term Chief Compliance Officer since 6 None
230 West Monroe Street of Office Expires 2005 2004 and prior thereto
Chicago, IL 60606 Operations/Compliance Officer,
Age: 35 Shay Assets Management, Inc.
Frederick J. Schmidt Chief Compliance Officer Senior Vice President and Chief 7 None
90 Park Avenue 10th Floor since 2004. Term of Office Compliance Officer, BISYS Fund
New York, NY 10016 Expires 2005 Services since 2004; President,
Age: 45 FJS Associates from 2002 to 2004.
Christine A. Cwik Assistant Secretary since Executive Secretary, Shay Assets 6 None
230 West Monroe Street 1999. Term of Office Management, Inc. since 1999
Chicago, IL 60606 Expires 2005
Age: 55
Alaina V. Metz Assistant Secretary since Vice President since 2002 and 7 None
3435 Stelzer Road 1999 and Assistant prior thereto Chief Administrative
Columbus, OH 43219 Treasurer since 2002. Term Officer, BISYS Fund Services Ohio,
Age: 37 of Office Expires 2005 Inc.
</Table>
43
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (UNAUDITED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
A. SECURITY ALLOCATION:
MONEY MARKET FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Agency Obligations.......................................... 68.5%
Repurchase Agreements....................................... 31.6%
-----
Total....................................................... 100.1%
=====
</Table>
- --------------------------------------------------------------------------------
ARM FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Adjustable Rate Mortgage-Related Securities................. 78.7%
Fixed Rate Mortgage-Related Securities...................... 13.9%
Repurchase Agreements....................................... 6.6%
U.S. Treasury Obligations................................... 0.6%
-----
Total....................................................... 99.8%
=====
</Table>
- --------------------------------------------------------------------------------
ULTRA SHORT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Adjustable Rate Mortgage-Related Securities................. 84.1%
Fixed Rate Mortgage-Related Securities...................... 13.9%
U.S. Treasury Obligations................................... 1.0%
Repurchase Agreements....................................... 0.8%
-----
Total....................................................... 99.8%
=====
</Table>
- --------------------------------------------------------------------------------
SHORT U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Fixed Rate Mortgage-Related Securities...................... 44.1%
Adjustable Rate Mortgage-Related Securities................. 36.6%
U.S. Treasury Obligations................................... 15.1%
Repurchase Agreements....................................... 3.7%
-----
Total....................................................... 99.5%
=====
</Table>
- --------------------------------------------------------------------------------
44
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
INTERMEDIATE MORTGAGE FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Fixed Rate Mortgage-Related Securities...................... 68.5%
Adjustable Rate Mortgage-Related Securities................. 22.2%
U.S. Treasury Obligations................................... 4.4%
Repurchase Agreements....................................... 4.2%
Agency Obligations.......................................... 0.7%
-----
Total....................................................... 100.0%
=====
</Table>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Fixed Rate Mortgage-Related Securities...................... 91.7%
U.S. Treasury Obligations................................... 11.0%
Agency Obligations.......................................... 2.0%
Repurchase Agreements....................................... 1.2%
-----
Total....................................................... 105.9%
=====
</Table>
- --------------------------------------------------------------------------------
B. EXPENSE COMPARISON:
EXPENSE COMPARISON:
As a shareholder of Asset Management Fund you incur ongoing costs, including
management fees; distribution (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in Asset Management Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire 6 month period from May 1, 2004 through
October 31, 2004.
45
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information below, together with the amount you
invested, to estimate the expenses that you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the table under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING ACCOUNT EXPENSE PAID EXPENSE RATIO
ACCOUNT VALUE VALUE DURING PERIOD* DURING PERIOD**
5/1/04 10/31/04 5/1/04 - 10/31/04 5/1/04 - 10/31/04
- ------------------------------------------------------------------------------------------------------------
Money Market Fund......... Class I $1,000.00 $1,003.50 $0.60 0.12%
Class D 1,000.00 1,006.00 3.13 0.62%
ARM Fund.................. 1,000.00 1,008.90 2.22 0.44%
Ultra Short Fund.......... 1,000.00 1,008.20 2.37 0.47%
Short U.S. Government
Fund.................... 1,000.00 1,014.80 2.38 0.47%
Intermediate Mortgage
Fund.................... 1,000.00 1,024.30 2.34 0.46%
U.S. Government Mortgage
Fund.................... 1,000.00 1,039.00 2.41 0.47%
</Table>
- --------------------------------------------------------------------------------
* Expenses are equal to the average account value times the fund's annualized
expense ratio multiplied by the number of days in the most recent fiscal
half-year divided by the number of days in the fiscal year.
** Annualized.
46
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
OCTOBER 31, 2004
- --------------------------------------------------------------------------------
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on each Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING ACCOUNT EXPENSE PAID EXPENSE RATIO
ACCOUNT VALUE VALUE DURING PERIOD* DURING PERIOD**
5/1/04 10/31/04 5/1/04 - 10/31/04 5/1/04 - 10/31/04
- ------------------------------------------------------------------------------------------------------------
Money Market Fund......... Class I $1,000.00 $1,024.53 $0.61 0.12%
Class D 1,000.00 1,022.02 3.15 0.62%
ARM Fund.................. 1,000.00 1,022.92 2.24 0.44%
Ultra Short Fund.......... 1,000.00 1,022.77 2.39 0.47%
Short U.S. Government
Fund.................... 1,000.00 1,022.77 2.39 0.47%
Intermediate Mortgage
Fund.................... 1,000.00 1,022.82 2.34 0.46%
U.S. Government Mortgage
Fund.................... 1,000.00 1,022.77 2.39 0.47%
</Table>
- --------------------------------------------------------------------------------
* Expenses are equal to the average account value times the fund's annualized
expense ratio multiplied by the number of days in the most recent fiscal
half-year divided by the number of days in the fiscal year.
** Annualized.
C. OTHER INFORMATION:
A description of the policies and procedures that the Funds use to determine
how to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling 800-527-3713; and (ii) on the Securities and
Exchange Commission's website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio
securities during the most recent 12 month period ended June 30 is available (i)
without charge, upon request, by calling 800-527-3713; and (ii) on the
Securities and Exchange Commission's website at http://www.sec.gov.
Beginning with the fiscal quarter ended July 31, 2004, a complete schedule of
each Fund's portfolio holdings for the first and third fiscal quarter of each
fiscal year is filed with the Securities and Exchange Commission on Form N-Q and
is available on the Securities and Exchange Commission's website at
http://www.sec.gov. In addition, the schedules may be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington D.C.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
The Statement of Additional Information includes additional information about
Trustees and is available, without charge, upon request by calling 800-527-3713.
47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
For general information about any of the Portfolios offered by Asset Management
Fund including fees and expenses, please send for a prospectus and read it
carefully before you invest.
SHAY FINANCIAL SERVICES, INC.
230 West Monroe Street/Chicago, IL 60606
800-527-3713
1000 Brickell Avenue/Miami, FL 33131
800-327-6190
83 East Avenue/Norwalk, CT 06851
800-456-8232
8500 Freeport Parkway South/ Irving, TX 75063
800-442-9825
4001 Stonewood Drive/Wexford, PA 15090
800-224-5177
350 Springfield Avenue/Summit, NJ 07091
800-553-6159
1035 Market Tower/Indianapolis, IN 46204
800-879-9958
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
To obtain performance data and other account information, call toll free
800-527-3713.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shay Financial Services, Inc.
230 West Monroe Street
Chicago, IL 60606
INVESTMENT ADVISER
Shay Assets Management, Inc.
230 West Monroe Street
Chicago, IL 60606
ADMINISTRATOR AND TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz, P.C.
222 North LaSalle Street
Chicago, IL 60601
CUSTODIAN
The Bank of New York
100 Church Street, 10th Fl.
New York, NY 10286
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Broad Street, Suite 2100
Columbus, OH 43215
[AMF LOGO]
ASSET MANAGEMENT FUND
230 West Monroe Street
Chicago, IL 60606
[AMF LOGO]
ASSET MANAGEMENT FUND
MANAGED BY:
SHAY ASSETS MANAGEMENT, INC.
SEMI-ANNUAL REPORT
APRIL 30, 2005
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
MONEY MARKET FUND
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
AGENCY OBLIGATIONS................................. 58.1%
Fannie Mae -- Discount Note*
2.68% 5/4/05 $ 8,000,000 $ 7,998,213
Federal Home Loan Bank -- Discount Note*
2.65% 5/4/05 3,000,000 2,999,338
2.73% 5/12/05 8,000,000 7,993,326
2.81% 6/23/05 4,000,000 3,983,452
2.81% 6/30/05 4,000,000 3,981,267
-----------
18,957,383
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $26,955,596) 26,955,596
-----------
REPURCHASE AGREEMENTS.............................. 42.1%
Citigroup, 2.92%,
(Agreement dated on 4/29/05 to be repurchased
at $19,537,753 on 5/02/05. Collateralized by
various U.S. Government Securities,
3.87%-7.5%, with a value of $19,923,660, due
2/1/14-5/1/35) 19,533,000 19,533,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $19,533,000) 19,533,000
-----------
TOTAL INVESTMENTS.................................. 100.2% 46,488,596
(Cost $46,488,596) (a)
LIABILITIES IN EXCESS OF OTHER ASSETS.............. (0.2%) (84,781)
-----------
Net Assets applicable to 46,415,765 Shares of
Common Stock issued and outstanding.............. 100.0% $46,403,815
===========
Net Asset Value, Class I, offering and redemption
price per share ($30,760,707 / 30,772,227) $1.00
===========
Net Asset Value, Class D, offering and redemption
price per share ($15,643,108 / 15,643,538) $1.00
===========
</Table>
- --------------------------------------------------------------------------------
(a) Cost for federal income tax purposes is the same.
* Effective yield at purchase.
See notes to financial statements.
1
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*.............................. 76.0%
1 Yr. Constant Maturity Treasury Based
ARMS
Bear Stearns Adjustable Rate Mortgage
Trust
4.50% 3/25/31 $ 10,525,776 $ 10,709,977
CS First Boston Mortgage Securities
Corp.
6.30% 11/25/31 4,344,296 4,393,170
5.30% 6/25/32 5,603,159 5,669,697
Fannie Mae
4.59% 7/1/28 13,918,009 14,424,861
4.45% 1/1/29 14,054,805 14,474,861
4.18% 8/1/29 11,555,816 11,895,222
4.54% 3/1/30 6,386,094 6,539,967
4.40% 6/1/30 12,222,546 12,638,552
4.44% 9/1/30 6,810,322 7,019,120
4.58% 5/1/33 15,242,726 15,632,848
4.30% 5/25/42 27,845,780 28,541,924
Fannie Mae Grantor Trust
4.31% 5/25/42 15,164,959 15,496,692
Fannie Mae Whole Loan
4.33% 8/25/42 13,261,410 13,655,108
Fifth Third Mortgage Loan Trust
3.33% 11/19/32 24,672,535 24,757,347
Freddie Mac
4.19% 10/1/22 5,090,127 5,184,300
5.49% 8/1/24 6,516,153 6,747,815
4.18% 9/1/27 6,033,949 6,194,012
4.10% 12/1/27 8,894,020 9,161,712
4.12% 12/1/27 8,342,892 8,578,412
4.18% 9/1/28 44,170,936 45,440,850
4.17% 9/1/30 5,923,286 6,097,324
4.19% 7/1/31 29,685,926 30,503,150
Structured Asset Mortgage Investments
4.56% 3/25/32 8,577,236 8,708,575
Washington Mutual
3.42% 4/25/44 48,489,878 48,823,245
--------------
361,288,741
--------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
2
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
6 Mo. Certificate of Deposit Based ARMS
Fannie Mae
3.52% 6/1/21 $ 6,149,522 $ 6,189,592
3.98% 12/1/24 8,688,446 8,850,712
Freddie Mac
3.95% 1/1/26 2,967,793 3,012,488
--------------
18,052,792
--------------
6 Mo. London Interbank Offering Rate
(LIBOR) Based ARMS
Bear Stearns Adjustable Rate Mortgage
Trust
5.26% 3/25/31 1,784,645 1,795,799
DLJ Mortgage Acceptance Corp.
4.55% 4/25/24 282,338 282,338
Fannie Mae
4.18% 9/1/27 43,359,308 44,073,653
3.50% 12/1/27 25,511,398 26,101,069
3.88% 3/1/28 56,928,221 58,315,050
4.00% 3/1/28 48,207,583 49,306,668
4.43% 4/1/28 17,544,448 18,035,447
3.67% 6/1/28 31,161,984 31,777,963
4.05% 6/1/28 5,853,522 6,042,205
3.71% 7/1/28 10,329,325 10,502,755
3.94% 8/1/28 14,976,614 15,336,757
4.04% 9/1/28 9,191,887 9,334,224
4.23% 9/1/28 3,051,883 3,128,451
4.32% 11/1/32 8,550,564 8,714,008
3.70% 12/1/32 8,050,771 8,301,979
4.02% 3/1/33 15,941,213 16,320,519
4.18% 9/1/33 23,081,755 23,616,028
4.19% 9/1/33 13,873,166 14,142,195
4.19% 11/1/33 26,866,018 27,602,738
5.12% 11/1/33 30,017,385 30,788,471
Freddie Mac
4.59% 9/1/30 13,346,440 13,842,968
Master Adjustable Rate Mortgage Trust
4.12% 1/25/34 18,910,950 19,129,608
MLCC Mortgage Investors, Inc.
4.43% 10/25/28 76,710,333 78,771,923
4.64% 5/25/29 48,915,441 50,275,902
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
3
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
Structured Asset Mortgage Investments,
Inc.
4.57% 7/19/32 $ 24,095,553 $ 24,637,703
4.17% 12/19/33 66,429,972 68,173,758
4.53% 10/19/33 51,727,476 53,020,663
4.49% 11/19/33 33,333,964 34,250,648
Structured Asset Securities Corp.
4.00% 5/25/32 26,450,949 26,839,447
4.98% 11/25/32 29,305,405 30,212,041
4.85% 12/25/32 25,500,384 26,297,270
4.81% 2/25/33 48,434,077 50,023,320
4.72% 3/25/33 23,335,631 24,035,700
5.33% 5/25/33 58,750,357 60,751,541
4.65% 9/25/33 63,422,138 65,166,247
--------------
1,028,947,056
--------------
Cost of Funds Index Based ARMS
Fannie Mae
3.37% 11/1/32 15,709,653 15,798,161
3.43% 8/1/33 32,287,419 32,524,764
3.60% 11/1/36 41,549,170 41,862,451
3.56% 6/1/38 26,408,152 26,581,522
--------------
116,766,898
--------------
HYBRID ARMS
Bank of America Mortgage Securities
5.30% 6/20/31 4,457,549 4,542,521
5.09% 7/20/32 2,970,415 3,017,756
4.81% 5/25/35 55,000,000 55,257,812
Bear Stearns Adjustable Rate Mortgage
Trust
3.74% 11/25/34 32,549,233 32,437,345
Fannie Mae
3.83% 12/1/37 38,921,500 39,293,940
GSR Mortgage Loan Trust
4.74% 10/25/33 12,041,645 12,075,512
4.74% 5/25/34 47,726,269 47,800,842
3.93% 8/25/34 44,352,000 43,756,020
3.55% 12/25/34 34,490,880 34,350,761
JP Morgan Mortgage Trust
3.50% 5/25/34 29,440,513 29,136,907
Master Adjustable Rate Mortgages Trust
5.41% 10/25/32 7,877,654 7,917,043
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
4
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors Inc.
4.51% 2/25/35 $ 23,951,931 $ 23,959,416
Structured Adjustable Rate Mortgage
Loan Trust
4.74%(a) 7/25/34 40,810,868 40,810,868
5.04% 9/25/34 25,267,584 25,504,468
Structured Asset Securities Corp
4.23%(a) 9/25/33 21,712,056 21,678,131
Washington Mutual
4.85% 5/25/35 50,000,000 50,203,125
Wells Fargo Mortgage Backed Securities
Trust
4.63% 10/25/33 15,233,139 15,242,660
4.63% 10/25/33 41,511,032 41,575,893
4.52% 11/25/33 40,352,911 40,378,132
4.72% 1/25/34 19,638,071 19,681,029
4.75% 6/25/34 19,062,380 19,151,735
4.81% 7/25/34 24,341,356 24,386,996
4.11%TBA 6/25/35 50,000,000 49,937,500
--------------
682,096,412
--------------
MONTHLY London Interbank Offering Rate
(LIBOR) Collateralized Mortgage
Obligations
Fannie Mae
4.00% 9/1/28 19,132,021 19,464,823
3.37% 9/18/31 11,154,338 11,181,476
4.20% 2/1/33 28,224,177 29,151,002
3.95% 7/1/33 4,844,662 4,959,529
4.03% 9/1/33 13,608,417 13,967,978
GSR Mortgage Loan Trust
3.37% 3/25/32 7,019,785 7,011,390
MLCC Mortgage Investors, Inc.
3.33% 9/15/21 7,668,964 7,685,740
--------------
93,421,938
--------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*
(Cost $2,289,328,981) 2,300,573,837
--------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
5
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
FIXED RATE MORTGAGE-RELATED SECURITIES..... 17.6%
Collateralized Mortgage Obligations
Citicorp Mortgage Securities
5.00% 10/25/33 $ 14,520,893 $ 14,483,498
Fannie Mae
4.50% 12/25/18 50,518,214 50,659,534
5.00% 5/25/27 38,175,108 38,456,955
Freddie Mac
3.50% 10/15/10 44,209,032 44,124,571
5.00% 3/15/11 902,910 902,628
5.00% 6/15/15 28,163,684 28,307,603
5.00% 6/15/15 46,926,642 47,680,341
4.00% 7/15/18 21,354,095 21,372,662
5.00% 11/15/19 35,810,820 36,484,475
5.00% 12/15/20 47,966,642 48,709,909
5.00% 1/15/21 49,215,370 49,860,682
4.00% 5/15/23 42,522,823 42,603,604
Government National Mortgage
Association
4.00% 2/20/27 78,813,914 78,823,781
Washington Mutual MSC Mortgage Pass
Through
5.00% 2/25/33 30,232,225 30,166,791
Wells Fargo Mortgage Backed Securities
Trust
5.00% 2/25/33 1,315,655 1,313,146
--------------
TOTAL FIXED RATE MORTGAGE-RELATED
SECURITIES
(Cost $535,349,610) 533,950,180
--------------
U.S. TREASURY OBLIGATIONS.................. 0.8%
U.S. Treasury Notes
3.38% 2/15/08 20,000,000 19,825,000
4.00% 11/15/12 5,000,000 4,996,680
--------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $24,848,489) 24,821,680
--------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
6
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
--------------
REPURCHASE AGREEMENTS...................... 8.8%
Citigroup, 2.92%, (Agreement dated
4/29/05 to be repurchased at
$206,187,160 on 5/2/05. Collateralized
by various Adjustable Rate Mortgage
U.S. Government Securities,
3.13%-6.21%, with a value of
$210,259,741, due 4/1/11-11/1/34) $206,137,000 $ 206,137,000
Bear Stearns*, 2.97%, (Agreement dated
4/29/05 to be repurchased at
$60,093,867 on 5/2/05. Collateralized
by various Adjustable Rate Mortgage
U.S. Government Securities,
3.21%-3.31%, with a value of
$61,860,212, due 1/15/30-10/15/30) 60,000,000 60,000,000
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $266,137,000) 266,137,000
--------------
TOTAL INVESTMENTS
(Cost $3,115,645,584)(b)................. 103.2% 3,125,482,697
LIABILITIES IN EXCESS OF OTHER ASSETS...... (3.2%) (95,477,447)
--------------
Net Assets applicable to 309,690,076 Shares
of Common Stock issued and outstanding... 100.0% $3,030,005,250
==============
Net Asset Value, offering and redemption
price per share
($3,030,005,250 / 309,690,076) $9.78
==============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at April 30, 2005.
(a) All or part of this security was used as collateral as of April 30, 2005.
(b) Cost for federal income tax purposes is the same.
TBA -- To be announced/when-issued security.
See notes to financial statements.
7
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES*... 74.9%
1 Yr. Constant Maturity Treasury Based ARMS
Fannie Mae
4.36% 10/1/26 $ 2,378,202 $ 2,462,047
4.19% 10/1/28 2,404,919 2,483,851
4.50% 12/1/30 7,353,537 7,636,193
4.46% 8/1/31 4,707,422 4,863,596
4.31% 7/1/33 8,604,239 8,881,820
Freddie Mac
4.12% 11/1/28 2,813,189 2,905,341
4.78% 1/1/29 6,331,539 6,574,910
4.11% 9/1/30 1,957,482 2,017,821
4.40% 8/1/31 12,076,461 12,468,015
Fund America Investors Corp.
4.02% 6/25/23 4,587,891 4,587,891
Washington Mutual
3.42% 4/25/44 7,459,981 7,511,269
------------
62,392,754
------------
6 Mo. Certificate of Deposit Based ARMS
Fannie Mae
3.50% 4/1/20 6,479,073 6,524,938
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
8
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
6 Mo. London Interbank Offering Rate (LIBOR)
Based ARMS
Fannie Mae
3.68% 12/1/26 $ 9,083,265 $ 9,298,257
3.71% 7/1/28 5,669,995 5,765,194
4.20% 9/1/32 8,593,324 8,812,522
MLCC Mortgage Investors, Inc.
4.64% 5/25/29 11,821,232 12,150,010
4.11% 7/25/29 12,585,374 12,935,403
Structured Adjustable Rate Mortgage Loan
Trust
4.44% 8/25/34 4,780,782 4,945,121
Structured Asset Securities Corp.
4.77% 11/25/32 4,671,375 4,815,896
4.98% 11/25/32 4,671,375 4,815,896
------------
63,538,299
------------
Cost of Funds Index Based ARMS
Regal Trust IV
3.65% 9/29/31 1,679,636 1,682,785
Ryland Mortgage Securities Corp.
4.02% 10/25/23 1,233,666 1,233,666
------------
2,916,451
------------
HYBRID ARMS
GSR Mortgage Loan Trust
4.74% 10/25/33 2,429,465 2,436,298
4.74% 5/25/34 6,087,301 6,096,813
Structured Adjustable Rate Mortgage Loan
Trust
4.74% 7/25/34 5,830,124 5,830,124
5.04% 9/25/34 12,633,792 12,752,234
Wells Fargo Mortgage Backed Securities
Trust
4.90% 5/25/34 13,172,588 13,201,403
4.81% 7/25/34 6,085,339 6,096,749
------------
46,413,621
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
9
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
MONTHLY London Interbank Offering Rate
(LIBOR) Collateralized Mortgage
Obligations
Structured Asset Mortgage Investments
4.18% 2/19/35 $ 4,888,195 $ 4,900,415
Structured Asset Securities Corp.
4.27% 3/25/33 3,936,466 3,978,291
4.37% 5/25/33 4,991,351 5,070,901
4.22% 11/25/33 3,573,237 3,616,786
------------
17,566,393
------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*
(Cost $198,676,275) 199,352,456
------------
FIXED RATE MORTGAGE-RELATED SECURITIES......... 15.3%
Collateralized Mortgage Obligations
Freddie Mac
5.00% 6/15/16 5,000,000 5,076,522
4.50% 12/15/20 11,527,688 11,623,062
5.50% 6/15/34 6,787,677 6,913,665
GSR Mortgage Loan Trust
4.50% 4/25/33 5,102,643 5,061,347
Morgan Stanley Mortgage Loan Trust
4.75% 8/25/34 12,157,000 12,112,081
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $41,133,471) 40,786,677
------------
U.S. TREASURY OBLIGATIONS...................... 1.1%
U.S. Treasury Note
3.50% 2/15/10 3,000,000 2,950,547
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,985,795) 2,950,547
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
10
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS.......................... 8.5%
Citigroup 2.92%, (Agreement dated 4/29/05 to
be repurchased at $22,516,478 on 5/2/05.
Collateralized by various U.S. Government
Securities, 4.00%-7.50%, with a value of
$22,961,220, due 8/1/16-3/1/35) $22,511,000 $ 22,511,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $22,511,000) 22,511,000
------------
TOTAL INVESTMENTS
(Cost $265,306,541) (a)...................... 99.8% 265,600,680
OTHER ASSETS IN EXCESS OF LIABILITIES.......... 0.2% 513,770
------------
Net Assets applicable to 27,096,878 Shares of
Common Stock issued and outstanding.......... 100.0% $266,114,450
============
Net Asset Value, offering and redemption price
per share ($266,114,450 / 27,096,878) $9.82
============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at April 30, 2005.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $44,285.
Cost for federal income tax purposes differs from fair value by net
unrealized appreciation of securities as follows:
<Table>
Unrealized appreciation $1,235,061
Unrealized depreciation (985,207)
----------
Net unrealized appreciation $ 249,854
==========
</Table>
See notes to financial statements.
11
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES*... 43.1%
1 Yr. Constant Maturity Treasury Based ARMS
Fannie Mae
4.49% 5/1/26 $ 5,046,898 $ 5,204,931
4.33% 5/1/27 1,470,234 1,516,110
4.50% 7/1/27 1,006,411 1,038,197
4.44% 7/1/28 5,021,372 5,182,729
4.52% 5/1/31 7,807,841 8,086,346
4.38% 9/1/33 5,687,769 5,871,683
Freddie Mac
4.37% 5/1/18 1,557,060 1,596,972
4.00% 3/1/27 3,132,782 3,228,864
4.40% 8/1/31 13,905,877 14,356,746
------------
46,082,578
------------
HYBRID ARMS
Structured Adjustable Rate Mortgage
Loan Trust
4.74% 7/25/34 8,745,186 8,745,186
Wells Fargo Mortgage Backed Securities Trust
4.81% 7/25/34 6,085,339 6,096,749
------------
14,841,935
------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*
(Cost $61,213,514) 60,924,513
------------
FIXED RATE MORTGAGE-RELATED SECURITIES......... 46.5%
15 Yr. Securities
Freddie Mac
8.50% 8/17/07 596,124 605,143
8.00% 12/17/15 1,266,133 1,331,714
------------
1,936,857
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
12
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations
Fannie Mae
4.50% 7/25/19 $25,000,000 $ 25,208,595
5.00% 1/25/28 10,225,000 10,343,284
Freddie Mac
7.00% 12/15/06 211,137 210,893
5.00% 7/15/26 15,000,000 15,207,831
6.00% 3/15/31 12,500,000 12,904,168
------------
63,874,771
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $65,647,804) 65,811,628
------------
U.S. TREASURY OBLIGATIONS...................... 8.5%
U.S. Treasury Notes
3.63% 7/15/09 2,000,000 1,983,594
3.38% 9/15/09 2,000,000 1,962,344
4.75% 5/15/14 3,000,000 3,127,499
4.25% 8/15/14 3,000,000 3,013,594
4.25% 11/15/14 2,000,000 2,006,875
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $12,160,279) 12,093,906
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
13
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS.......................... 1.5%
Citigroup, 2.92%, (Agreement dated 4/29/05 to
be repurchased at $2,085,507 on 5/2/05.
Collateralized by various U.S. Government
Securities, 3.71%-6.00%, with a value of
$2,126,701, due 10/1/18-12/1/33) $ 2,085,000 $ 2,085,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $2,085,000) 2,085,000
------------
TOTAL INVESTMENTS
(Cost $141,106,597) (a)...................... 99.6% 140,915,047
OTHER ASSETS IN EXCESS
OF LIABILITIES............................... 0.4% 593,143
------------
Net Assets applicable to 13,494,302 Shares of
Common Stock issued and outstanding.......... 100.0% $141,508,190
============
Net Asset Value, offering and redemption price
per share ($141,508,190 /13,494,302) $10.49
============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at April 30, 2005.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $14,967.
Cost for federal income tax purposes differs from fair value by net
unrealized depreciation of securities as follows:
<Table>
Unrealized appreciation $ 275,415
Unrealized depreciation (481,932)
---------
Net unrealized depreciation $(206,517)
=========
</Table>
See notes to financial statements.
14
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES*.... 38.6%
1 Yr. Constant Maturity Treasury Based ARMS
Countrywide Home Loan
4.33% 1/20/35 9,114,908 $ 9,359,871
------------
HYBRID ARMS
American Home Mortgage Investment Trust
3.71% 10/25/34 8,635,498 8,551,841
Bank of America Mortgage Securities,
3.33% 4/25/33 912,618 906,914
Fannie Mae
4.76% 11/1/34 19,167,998 19,341,103
JP Morgan Mortgage Trust
4.91% 12/25/34 4,357,675 4,364,484
4.88% 2/25/35 8,800,000 8,827,500
Morgan Stanley Mortgage Loan Trust
4.22% 8/25/34 8,250,314 8,188,437
4.92% 9/25/34 15,000,000 15,135,938
5.47% 10/25/34 11,000,000 11,319,688
Structured Adjustable Rate Mortgage Loan
Trust
4.74% 7/25/34 6,226,572 6,226,572
5.21% 9/25/34 18,460,280 18,581,426
------------
101,443,903
------------
TOTAL ADJUSTABLE RATE MORTGAGE-RELATED
SECURITIES*
(Cost $111,405,735) 110,803,774
------------
AGENCY OBLIGATIONS.............................. 0.7%
Freddie Mac
5.75% 3/15/09 2,000,000 2,114,858
------------
TOTAL AGENCY OBLIGATIONS
(Cost $1,866,030) 2,114,858
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
15
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
FIXED RATE MORTGAGE-RELATED SECURITIES.......... 56.7%
15 Yr. Securities
Fannie Mae
7.00% 3/1/15 1,613,162 1,700,373
7.00% 3/1/15 855,374 901,617
7.00% 3/1/15 899,420 948,045
7.50% 11/1/15 1,153,535 1,218,647
6.50% 1/1/16 1,206,568 1,267,037
6.00% 6/1/16 2,701,522 2,802,407
6.00% 7/1/17 1,701,148 1,764,675
6.00% 7/1/17 2,532,007 2,626,562
5.50% 9/1/17 4,678,937 4,797,921
5.00% 11/1/17 9,162,438 9,250,484
5.00% 11/1/18 9,681,290 9,766,758
Freddie Mac
7.50% 1/1/10 811,072 855,586
6.00% 6/1/17 2,844,221 2,951,768
5.00% 12/1/18 7,766,977 7,839,187
------------
48,691,067
------------
20 Yr. Securities
Freddie Mac Gold
5.50% 2/1/24 7,832,922 7,958,065
5.50% 12/1/24 9,694,448 9,849,332
------------
17,807,397
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
16
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations
Countrywide Home Loan
5.00% 5/25/34 12,979,144 12,970,975
Freddie Mac
4.00% 12/15/16 16,265,293 16,092,985
5.00% 8/15/23 13,177,000 13,376,422
5.00% 7/15/26 15,000,000 15,207,831
4.50% 3/15/29 5,000,000 4,993,335
6.00% 3/15/31 12,500,000 12,904,168
Washington Mutual MSC Mortgage Pass
Through,
4.55% 5/25/33 12,693,378 12,602,957
Wells Fargo Mortgage Backed Securities
Trust
5.50% 10/25/14 7,930,458 7,982,757
------------
96,131,430
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $162,444,221) 162,629,894
------------
U.S. TREASURY OBLIGATIONS....................... 0.7%
U.S. Treasury Note
4.25% 11/15/14 2,000,000 2,006,875
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,030,676) 2,006,875
------------
REPURCHASE AGREEMENTS........................... 3.3%
Citigroup, 2.92%, (Agreement dated 4/29/05 to
be repurchased at $9,330,270 on 5/2/05.
Collateralized by various U.S. Government
Securities, 4.21%-6.50%, with a value of
$9,514,560, due 4/1/14-5/1/35) 9,328,000 9,328,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $9,328,000) 9,328,000
------------
TOTAL INVESTMENTS
(Cost $287,078,048) (a).................... 100.0% 286,883,401
OTHER ASSETS IN EXCESS OF LIABILITIES........... 0.0% 108,902
------------
Net Assets applicable to 30,385,056 Shares of
Common Stock issued and outstanding........... 100.0% $286,992,303
============
Net Asset Value, offering and redemption price
per share ($286,992,303 / 30,385,056) $9.45
============
</Table>
- --------------------------------------------------------------------------------
* The rates presented are the rates in effect at April 30, 2005.
(a) Cost for federal income tax purposes is the same.
See notes to financial statements.
17
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
U.S. GOVERNMENT MORTGAGE FUND
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
AGENCY OBLIGATIONS.............................. 1.9%
Freddie Mac
5.75% 3/15/09 $ 3,000,000 $ 3,172,287
------------
TOTAL AGENCY OBLIGATIONS
(Cost $2,816,384) 3,172,287
------------
FIXED RATE MORTGAGE-RELATED SECURITIES.......... 90.0%
15 Yr. Securities
Fannie Mae
7.00% 3/1/15 1,434,011 1,511,537
6.00% 8/1/16 5,465,314 5,669,409
5.00% 3/1/18 2,408,563 2,431,708
------------
9,612,654
------------
20 Yr. Securities
Freddie Mac Gold
5.50% 10/1/24 13,277,991 13,490,128
------------
30 Yr. Securities
Fannie Mae
5.00% 8/1/33 13,438,295 13,346,956
5.50% 11/1/33 15,239,534 15,408,002
5.50% 4/1/34 6,378,517 6,449,030
6.00% 6/1/34 9,682,426 9,949,828
5.50% 7/1/34 20,141,061 20,357,420
5.50% 8/1/34 11,624,265 11,752,041
5.50% 9/1/34 14,195,997 14,348,494
5.50% 11/1/34 8,935,633 9,028,829
6.00% 4/1/35 11,470,352 11,783,547
Freddie Mac Gold
6.00% 4/1/33 5,251,232 5,393,794
5.50% 10/1/34 9,678,332 9,799,840
Government National Mortgage Association
7.50% 2/15/24 753,072 809,876
7.00% 4/15/27 1,092,979 1,166,798
6.00% 1/15/29 1,401,181 1,452,740
------------
131,047,195
------------
TOTAL FIXED RATE MORTGAGE-RELATED SECURITIES
(Cost $152,720,468) 154,149,977
------------
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
18
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
U.S. GOVERNMENT MORTGAGE FUND (CONTINUED)
STATEMENT OF NET ASSETS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE
OF NET PRINCIPAL
ASSETS MATURITY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS....................... 2.3%
U.S. Treasury Note
4.00% 6/15/09 $ 4,000,000 $ 4,025,312
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $4,063,244) 4,025,312
------------
REPURCHASE AGREEMENTS........................... 5.8%
Citigroup, 2.92%, (Agreement dated 4/29/05 to
be repurchased at $9,984,429 on 5/2/05.
Collateralized by various U.S. Government
Securities, 3.38%-6.00%, with a value of
$10,181,640, due 3/1/14-11/1/32) 9,982,000 9,982,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $9,982,000) 9,982,000
------------
TOTAL INVESTMENTS
(Cost $169,585,432) (a).................... 100.0% 171,329,576
OTHER ASSETS IN EXCESS OF LIABILITIES........... 0.0% 57,227
------------
Net Assets applicable to 16,439,226 Shares of
Common Stock issued and outstanding........... 100.0% $171,386,803
============
Net Asset Value, offering and redemption price
per share ($171,386,803 / 16,439,226) $10.43
============
</Table>
- --------------------------------------------------------------------------------
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income tax reporting of $136,721.
Cost for federal income tax purposes differs from fair value by net
unrealized appreciation of securities as follows:
<Table>
Unrealized appreciation $1,958,451
Unrealized depreciation (351,028)
----------
Net unrealized appreciation $1,607,423
==========
</Table>
See notes to financial statements.
19
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE U.S.
MONEY RATE MORTGAGE SHORT U.S. INTERMEDIATE GOVERNMENT
MARKET (ARM) ULTRA SHORT GOVERNMENT MORTGAGE MORTGAGE
FUND FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income.............. $580,109 $ 47,651,473 $ 4,538,531 $ 2,632,690 $ 6,414,588 $ 4,327,017
-------- ------------ ----------- ----------- ----------- -----------
Operating expenses:
Investment advisory fees... 37,870 7,160,929 621,208 183,646 509,872 209,754
Distribution fee -- Class I
Shares................... 23,541 3,978,275 345,114 110,188 218,518 125,853
Distribution fee -- Class D
Shares................... 57,313 -- -- -- -- --
Administration fee......... 7,574 307,899 41,413 22,037 43,703 25,170
Custodian fee.............. 5,987 155,770 21,002 16,358 22,336 15,856
Transfer agent fee......... 2,181 38,210 4,493 1,675 1,714 841
Legal...................... 1,678 115,140 9,999 5,323 9,826 5,735
Printing................... 281 20,410 1,748 939 1,795 1,025
Trustees' fees............. 674 42,149 3,594 1,930 3,713 2,106
Other...................... 14,692 196,315 24,219 19,207 27,629 17,056
-------- ------------ ----------- ----------- ----------- -----------
Total expenses before fee
reductions............... 151,791 12,015,097 1,072,790 361,303 839,106 403,396
Expenses reduced by
Investment Advisor....... (37,870) (3,182,655) (276,094) -- (145,677) --
Expenses reduced by
Distributor.............. (25,247) (1,591,298) (138,044) -- -- --
-------- ------------ ----------- ----------- ----------- -----------
Net expenses............. 88,674 7,241,144 658,652 361,303 693,429 403,396
-------- ------------ ----------- ----------- ----------- -----------
Net investment income.... 491,435 40,410,329 3,879,879 2,271,387 5,721,159 3,923,621
-------- ------------ ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
FROM INVESTMENT ACTIVITIES:
Realized gains/(losses) from
investment transactions.... (407) (2,519,608) (77,148) (994,347) (665,399) 283,046
Change in unrealized
appreciation/depreciation
from investments........... -- (8,278,259) (960,558) (637,487) (3,191,987) (2,899,139)
-------- ------------ ----------- ----------- ----------- -----------
Net realized/unrealized
gains/(losses) from
investments................ (407) (10,797,867) (1,037,706) (1,631,834) (3,857,386) (2,616,093)
-------- ------------ ----------- ----------- ----------- -----------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS................ $491,028 $ 29,612,462 $ 2,842,173 $ 639,553 $ 1,863,773 $ 1,307,528
======== ============ =========== =========== =========== ===========
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
20
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET FUND
---------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31,
(UNAUDITED) 2004
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income.................................. $ 491,435 $ 487,094
Net realized gains (losses) from investments........... (407) --
------------- -------------
Change in net assets resulting from operations....... 491,028 487,094
------------- -------------
Dividends paid to Class I stockholders:
From net investment income............................. (333,911) (376,981)
Dividends paid to Class D stockholders:
From net investment income............................. (157,524) (110,113)
------------- -------------
Total dividends paid to stockholders................. (491,435) (487,094)
------------- -------------
Capital Transactions Class I Shares:
Proceeds from sale of shares........................... 91,144,102 212,174,352
Shares issued to stockholders in reinvestment of
dividends............................................. 281,160 337,606
Cost of shares repurchased............................. (92,547,348) (221,365,484)
Capital Transactions Class D Shares:
Proceeds from sale of shares........................... 264,708,380 385,481,528
Shares issued to stockholders in reinvestment of
dividends............................................. 98,882 47,207
Cost of shares repurchased............................. (268,252,786) (389,965,369)
------------- -------------
Change in net assets from capital transactions....... (4,567,610) (13,290,160)
------------- -------------
Change in net assets................................. (4,568,017) (13,290,160)
Net Assets:
Beginning of period....................................... 50,971,832 64,261,992
------------- -------------
End of period............................................. $ 46,403,815 $ 50,971,832
============= =============
Accumulated net investment income/(loss).................... -- --
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
21
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE ULTRA SHORT
MORTGAGE (ARM) FUND FUND
----------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, TO APRIL 30, 2005 OCTOBER 31,
(UNAUDITED) 2004 (UNAUDITED) 2004
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income......... $ 40,410,329 $ 73,324,083 $ 3,879,879 $ 5,652,745
Net realized gains (losses)
from investments........... (2,519,608) (9,290,088) (77,148) (825,070)
Change in unrealized
appreciation/depreciation
from investments........... (8,278,259) 3,530,500 (960,558) 30,025
--------------- --------------- ------------ -------------
Change in net assets
resulting from
operations............... 29,612,462 67,564,495 2,842,173 4,857,700
--------------- --------------- ------------ -------------
Dividends paid to stockholders:
From net investment income.... (46,116,474) (87,074,818) (4,364,180) (6,485,357)
--------------- --------------- ------------ -------------
Total dividends paid to
stockholders............. (46,116,474) (87,074,818) (4,364,180) (6,485,357)
--------------- --------------- ------------ -------------
Capital Transactions:
Proceeds from sale of
shares..................... 1,165,209,379 2,244,424,388 48,873,953 185,331,981
Shares issued to stockholders
in reinvestment of
dividends.................. 24,167,322 50,798,140 2,007,818 3,213,793
Cost of shares repurchased.... (1,459,891,822) (3,555,626,724) (74,593,827) (147,237,653)
--------------- --------------- ------------ -------------
Change in net assets from
capital transactions..... (270,515,121) (1,260,404,196) (23,712,056) 41,308,121
--------------- --------------- ------------ -------------
Change in net assets....... (287,019,133) (1,279,914,519) (25,234,063) 39,680,464
Net Assets:
Beginning of period............. 3,317,024,383 4,596,938,902 291,348,513 251,668,049
--------------- --------------- ------------ -------------
End of period................... $ 3,030,005,250 $ 3,317,024,383 $266,114,450 $ 291,348,513
=============== =============== ============ =============
Accumulated net investment income/
(loss).......................... $ (6,797,116) $ (1,090,971) $ (473,893) $ 10,408
</Table>
- --------------------------------------------------------------------------------
See notes to financial statements.
22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHORT U.S. GOVERNMENT INTERMEDIATE MORTGAGE U.S. GOVERNMENT
FUND FUND MORTGAGE FUND
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, APRIL 30, 2005 OCTOBER 31, APRIL 30, 2005 OCTOBER 31,
(UNAUDITED) 2004 (UNAUDITED) 2004 (UNAUDITED) 2004
- --------------------------------------------------------------------------------------------------------
$ 2,271,387 $ 4,605,342 $ 5,721,159 $ 9,349,175 $ 3,923,621 $ 6,669,616
(994,347) 517,417 (665,399) (1,442,590) 283,046 (2,022,919)
(637,487) (1,221,548) (3,191,987) 763,779 (2,899,139) 3,133,197
------------ ------------- ------------ ------------ ------------ ------------
639,553 3,901,211 1,863,773 8,670,364 1,307,528 7,779,894
------------ ------------- ------------ ------------ ------------ ------------
(2,459,685) (5,009,529) (5,860,360) (10,181,481) (3,951,619) (7,450,517)
------------ ------------- ------------ ------------ ------------ ------------
(2,459,685) (5,009,529) (5,860,360) (10,181,481) (3,951,619) (7,450,517)
------------ ------------- ------------ ------------ ------------ ------------
323,010 37,505,664 5,861 6,536,412 8,516,000 14,762,850
1,273,223 2,867,566 2,317,423 4,241,126 2,976,304 5,105,098
(11,519,999) (118,618,032) (9,642,434) (58,816,046) (4,329,365) (57,895,104)
------------ ------------- ------------ ------------ ------------ ------------
(9,923,766) (78,244,802) (7,319,150) (48,038,508) 7,162,939 (38,027,156)
------------ ------------- ------------ ------------ ------------ ------------
(11,743,898) (79,353,120) (11,315,737) (49,549,625) 4,518,848 (37,697,779)
153,252,088 232,605,208 298,308,040 347,857,665 166,867,955 204,565,734
------------ ------------- ------------ ------------ ------------ ------------
$141,508,190 $ 153,252,088 $286,992,303 $298,308,040 $171,386,803 $166,867,955
============ ============= ============ ============ ============ ============
$ (197,130) $ (8,832) $ (142,175) $ (2,974) $ (44,425) $ (16,427)
</Table>
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- CLASS I SHARES
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2005 --------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income....... 0.0105 0.0104 0.0096 0.0152 0.0441 0.0578
Net realized losses from
investments.............. --(a) -- -- -- -- --(a)
-------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.0105 0.0104 0.0096 0.0152 0.0441 0.0578
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends paid to
stockholders:
From net investment
income................. (0.0105) (0.0104) (0.0096) (0.0152) (0.0441) (0.0578)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............. 1.06%(b) 1.04% 0.97% 1.54% 4.50% 5.93%
Ratios/Supplemental data:
Net assets, end of period
(in 000's)............... $ 30,761 $ 31,883 $ 40,737 $ 30,571 $ 45,491 $ 48,202
Ratio of expenses to average
net assets............... 0.18%(c) 0.11% 0.18% 0.26% 0.30% 0.30%
Ratio of net investment
income to average net
assets................... 2.13%(c) 1.04% 0.96% 1.53% 4.31% 5.74%
Ratio of expenses to average
net assets*.............. 0.46%(c) 0.41% 0.39% 0.41% 0.45% 0.45%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Net realized losses per share and/or distributions from net realized gains
were less than $0.00005.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
24
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS -- CLASS D SHARES
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS DECEMBER 19,
ENDED YEAR ENDED OCTOBER 31, 1999(A) TO
APRIL 30, 2005 ----------------------------------------- OCTOBER 31,
(UNAUDITED) 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income............ 0.0083 0.0054 0.0046 0.0104 0.0397 0.0466
Net realized losses from
investments................... --(b) -- -- -- -- --(b)
-------- -------- -------- -------- -------- --------
Total from investment
operations............... 0.0083 0.0054 0.0046 0.0104 0.0397 0.0466
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income.... (0.0083) (0.0054) (0.0046) (0.0104) (0.0397) (0.0466)
-------- -------- -------- -------- -------- --------
Change in net asset value.......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return................ 0.83%(c) 0.54% 0.47% 1.05% 4.04% 4.74%(d)
Ratios/Supplemental data:
Net assets, end of period (in
000's)........................ $ 15,643 $ 19,089 $ 23,525 $ 15,039 $ 8,787 $ 3,388
Ratio of expenses to average net
assets........................ 0.63%(e) 0.61% 0.67% 0.75% 0.75% 0.75%(e)
Ratio of net investment income to
average net assets............ 1.65%(e) 0.54% 0.45% 1.04% 3.46% 5.66%(e)
Ratio of expenses to average net
assets*....................... 0.88%(e) 0.86% 0.84% 0.86% 0.91% 0.94%(e)
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Net realized losses per share were less than $0.00005.
(c) Not annualized.
(d) Represents the total return for the period from December 19, 1999 to October
31, 2000.
(e) Annualized.
See notes to financial statements.
25
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADJUSTABLE RATE MORTGAGE (ARM) FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2005 ------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001+ 2000
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 9.83 $ 9.88 $ 9.95 $ 9.97 $ 9.86 $ 9.84
---------- ---------- ---------- ---------- ---------- --------
Income from investment
operations:
Net investment income....... 0.1226 0.1824 0.1778 0.2947 0.5319 0.6048
Net realized and unrealized
gains (losses) from
investments.............. (0.0313) (0.0070) (0.0230) 0.0124 0.1386 0.0233
---------- ---------- ---------- ---------- ---------- --------
Total from investment
operations.......... 0.0913 0.1754 0.1548 0.3071 0.6705 0.6281
---------- ---------- ---------- ---------- ---------- --------
Less distributions:
Dividends paid to
stockholders:
From net investment
income................. (0.1413) (0.2254) (0.2248) (0.3271) (0.5605) (0.6129)
---------- ---------- ---------- ---------- ---------- --------
Change in net asset value..... (0.05) (0.05) (0.07) (0.02) 0.11 0.02
---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of
period...................... $ 9.78 $ 9.83 $ 9.88 $ 9.95 $ 9.97 $ 9.86
========== ========== ========== ========== ========== ========
Total return.................. 0.93%(a) 1.79% 1.57% 3.13% 6.98% 6.63%
Ratios/Supplemental data:
Net assets, end of period
(in 000's)............... $3,030,005 $3,317,024 $4,596,939 $3,389,975 $2,064,844 $681,652
Ratio of expenses to average
net assets............... 0.46%(b) 0.44% 0.44% 0.45% 0.49% 0.48%
Ratio of net investment
income to average net
assets................... 2.54%(b) 1.92% 1.72% 2.91% 5.37% 6.22%
Ratio of expenses to average
net assets*.............. 0.76%(b) 0.72% 0.71% 0.75% 0.79% 0.78%
Portfolio turnover rate..... 32% 50% 117% 107% 72% 67%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
+ Net investment income is based on average shares outstanding through the
period.
(a) Not annualized.
(b) Annualized.
See notes to financial statements.
26
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ULTRA SHORT FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS NOVEMBER 14,
ENDED YEAR ENDED OCTOBER 31, 2001(A) TO
APRIL 30, 2005 ---------------------- APRIL 30, 2002
(UNAUDITED) 2004 2003 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period........... $ 9.87 $ 9.92 $ 9.95 $ 10.00
-------- -------- -------- --------
Income from investment operations:
Net investment income........................ 0.1370 0.1985 0.1601 0.2204
Net realized and unrealized gains on
investments............................... (0.0322) (0.0217) 0.0242 0.0058
-------- -------- -------- --------
Total from investment operations........ 0.1048 0.1768 0.1843 0.2262
-------- -------- -------- --------
Less distributions:
Dividends paid to stockholders:
From net investment income................ (0.1548) (0.2268) (0.2143) (0.2762)
-------- -------- -------- --------
Change in net asset value...................... (0.05) (0.05) (0.03) (0.05)
-------- -------- -------- --------
Net asset value, end of period................. $ 9.82 $ 9.87 $ 9.92 $ 9.95
======== ======== ======== ========
Total return................................... 1.07%(b) 1.80% 1.87% 2.29%(b)
Ratios/Supplemental data:
Net assets, end of period (in 000's)......... $266,114 $291,349 $251,668 $287,116
Ratio of expenses to average net assets...... 0.48%(c) 0.47% 0.47% 0.50%(c)
Ratio of net investment income to average net
assets.................................... 2.81%(c) 2.00% 1.66% 2.11%(c)
Ratio of expenses to average net assets*..... 0.78%(c) 0.77% 0.77% 0.80%(c)
Portfolio turnover rate...................... 14% 118% 126% 127%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
27
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
SHORT U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2005 --------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.61 $ 10.68 $ 10.78 $ 10.75 $ 10.34 $ 10.36
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income....... 0.1609 0.2640 0.2738 0.3512 0.5652 0.5973
Net realized and unrealized
gains (losses) from
investments.............. (0.1060) (0.0415) (0.0686) 0.0674 0.4086 (0.0240)
-------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.0549 0.2225 0.2052 0.4186 0.9738 0.5733
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends paid to
stockholders:
From net investment
income................. (0.1749) (0.2925) (0.3052) (0.3886) (0.5638) (0.5976)
-------- -------- -------- -------- -------- --------
Change in net asset value..... (0.12) (0.07) (0.10) 0.03 0.41 (0.02)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period...................... $ 10.49 $ 10.61 $ 10.68 $ 10.78 $ 10.75 $ 10.34
======== ======== ======== ======== ======== ========
Total return.................. 0.53%(a) 2.11% 1.92% 3.98% 9.66% 5.77%
Ratios/Supplemental data:
Net assets, end of period
(in 000's)............... $141,508 $153,252 $232,605 $162,170 $191,632 $ 96,098
Ratio of expenses to average
net assets............... 0.49%(b) 0.48% 0.47% 0.49% 0.51% 0.51%
Ratio of net investment
income to average net
assets................... 3.09%(b) 2.50% 2.47% 3.35% 5.25% 5.79%
Portfolio turnover rate..... 58% 152% 72% 75% 54% 138%
</Table>
- --------------------------------------------------------------------------------
(a) Not annualized.
(b) Annualized.
See notes to financial statements.
28
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
INTERMEDIATE MORTGAGE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2005 --------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 9.57 $ 9.62 $ 9.79 $ 9.83 $ 9.33 $ 9.33
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income....... 0.1844 0.2892 0.2525 0.4155 0.5675 0.5754
Net realized and unrealized
gains (losses) from
investments.............. (0.1154) (0.0233) (0.1156) (0.0213) 0.4861 0.0051
-------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.0690 0.2659 0.1369 0.3942 1.0536 0.5805
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends paid to
stockholders:
From net investment
income................. (0.1890) (0.3159) (0.3069) (0.4342) (0.5536) (0.5795)
-------- -------- -------- -------- -------- --------
Change in net asset value..... (0.12) (0.05) (0.17) (0.04) 0.50 0.00
-------- -------- -------- -------- -------- --------
Net asset value, end of
period...................... $ 9.45 $ 9.57 $ 9.62 $ 9.79 $ 9.83 $ 9.33
======== ======== ======== ======== ======== ========
Total return.................. 0.73%(a) 2.81% 1.41% 4.13% 11.59% 6.47%
Ratios/Supplemental data:
Net assets, end of period
(in 000's)............... $286,992 $298,308 $347,858 $240,645 $204,891 $ 90,768
Ratio of expenses to average
net assets............... 0.48%(b) 0.47% 0.47% 0.47% 0.50% 0.51%
Ratio of net investment
income to average net
assets................... 3.93%(b) 3.02% 2.52% 4.28% 5.74% 6.25%
Ratio of expenses to average
net assets*.............. 0.58%(b) 0.57% 0.57% 0.57% 0.60% 0.61%
Portfolio turnover rate..... 47% 148% 98% 54% 47% 110%
</Table>
- --------------------------------------------------------------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized
See notes to financial statements.
29
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
U.S. GOVERNMENT MORTGAGE FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
- --------------------------------------------------------------------------------
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, 2005 --------------------------------------------------------
(UNAUDITED) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $ 10.59 $ 10.56 $ 10.77 $ 10.83 $ 10.27 $ 10.26
-------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income....... 0.2430 0.3875 0.3689 0.5116 0.6381 0.6646
Net realized and unrealized
gains (losses) on
investments.............. (0.1583) 0.0795 (0.1511) (0.0377) 0.5590 0.0109
-------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.0847 0.4670 0.2178 0.4739 1.1971 0.6755
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends paid to
stockholders:
From net investment
income................. (0.2447) (0.4370) (0.4278) (0.5339) (0.6371) (0.6682)
-------- -------- -------- -------- -------- --------
Change in net asset value..... (0.16) 0.03 (0.21) (0.06) 0.56 0.01
-------- -------- -------- -------- -------- --------
Net asset value, end of
period...................... $ 10.43 $ 10.59 $ 10.56 $ 10.77 $ 10.83 $ 10.27
======== ======== ======== ======== ======== ========
Total return.................. 0.81%(a) 4.52% 2.04% 4.54% 11.99% 6.90%
Ratios/Supplemental data:
Net assets, end of period
(in 000's)............... $171,387 $166,868 $204,566 $ 94,154 $105,713 $ 71,449
Ratio of expenses to average
net assets............... 0.48%(b) 0.47% 0.47% 0.47% 0.50% 0.52%
Ratio of net investment
income to average net
assets................... 4.68%(b) 3.70% 3.39% 4.80% 6.09% 6.53%
Portfolio turnover rate..... 41% 171% 102% 82% 86% 127%
</Table>
- --------------------------------------------------------------------------------
(a) Not annualized.
(b) Annualized.
See notes to financial statements.
30
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
Asset Management Fund (the "Trust") was reorganized as a Delaware Statutory
Trust on September 30, 1999, and is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end, diversified investment
company. As of April 30, 2005, the Trust is authorized to issue an unlimited
number of shares in six separate Funds: the Money Market Fund, the Adjustable
Rate Mortgage (ARM) Fund, the Ultra Short Fund, the Short U.S. Government Fund,
the Intermediate Mortgage Fund and the U.S. Government Mortgage Fund (referred
to individually as a "Fund" and collectively as the "Funds"). Each of the Funds,
except the Money Market Fund, offers a single class of shares. The Money Market
Fund is authorized to sell two classes of shares, namely, Class I Shares and
Class D Shares. Each Class I and Class D Share of the Money Market Fund
represents identical interests in the Fund and has the same rights except that
(i) Class D Shares bear a higher distribution fee, which will cause Class D
Shares to have a higher expense ratio and to pay lower dividends than those
related to Class I Shares; (ii) certain other class specific expenses will be
borne solely by the class to which such expenses are attributable; and (iii)
each class has exclusive voting rights with respect to the matters relating to
its own distribution arrangements.
Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Trust. In addition, in the normal course of business, the Trust
enters into contracts with its vendors and others that provide general
indemnification. Each Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against a Fund.
However, based on experience, the Trust expects the risk of loss to be remote.
A. Significant accounting policies are as follows:
SECURITY VALUATION
Money Market Fund:
Fund securities are valued under the amortized cost method, which approximates
current market value. Under this method, securities are valued at cost when
purchased and thereafter a constant proportionate amortization of any discount
or premium is recorded until maturity of the security. The Fund seeks to
maintain net asset value per share at $1.00.
Adjustable Rate Mortgage (ARM) Fund, Ultra Short Fund, Short U.S. Government
Fund, Intermediate Mortgage Fund, and U.S. Government Mortgage Fund:
As of April 30, 2005, substantially all of the Funds' investments are fair
valued using matrix pricing methods. These matrix pricing methods, determined by
either an independent pricing service or the Adviser, incorporate market
quotations, prices provided directly by market makers and take into
consideration such factors as security prices, yields, maturities, and ratings.
Additionally, upon a significant valuation event, securities can be valued at
fair value by the Adviser, under procedures reviewed by the Board of Trustees.
Short-term instruments maturing within 60 days of the valuation date may be
valued based upon their amortized cost.
REPURCHASE AGREEMENTS
Repurchase agreements collateralized by obligations of the U.S. government or
its agencies may be purchased, subject to the seller's agreement to repurchase
them at an agreed upon date and price. Each Fund will always receive as
collateral instruments whose market value, including accrued interest, will be
at least equal to 100% of the dollar amount invested by the Fund in each
agreement, and each Fund will make payment for such instruments only upon their
physical delivery to, or evidence of their book
31
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
entry transfer to the account of, the Fund's custodian. If the counter-party
defaults, and the fair value of the collateral declines, realization of the
collateral by the Funds may be delayed or limited.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED-DELIVERY BASIS
Each Fund, except the Money Market Fund, may purchase securities on a
when-issued or delayed-delivery basis. In when-issued transactions, securities
are bought or sold during the period between the announcement of an offering and
the issuance and payment date of the securities. When securities are purchased
on a delayed-delivery basis, the price of the securities is fixed at the time
the commitment to purchase is made, but settlement may take place at a future
date. By the time of delivery, securities purchased on a when-issued or
delayed-delivery basis may be valued at less than the purchase price. At the
time when-issued and delayed-delivery securities are purchased, the Fund must
set aside funds in a segregated account to pay for the purchase, and until
acquisition, the Fund will not earn any income on the securities that it
purchased.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly. Net
short-term and long-term capital gains, if any, are declared and paid annually.
FEDERAL TAXES
No provision is made for Federal taxes as it is each Fund's intention to
continue to qualify as a regulated investment company and to make the requisite
distributions to the stockholders, which will be sufficient to relieve each Fund
from all or substantially all Federal income and excise taxes.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
OTHER
Investment transactions are accounted for on the trade date, interest income
is recorded on the accrual basis, amortization and accretion is recognized based
on the effective maturity date, and the cost of investments sold is determined
by use of the specific identification method for both financial reporting and
income tax purposes.
B. Shay Assets Management, Inc. ("SAMI") serves the Trust as investment adviser
(the "Adviser"). The Adviser is a wholly-owned subsidiary of Shay Investment
Services, Inc. ("SISI"), which is majority owned by Rodger D. Shay, the Chairman
of the Board of Trustees of the Trust, and Rodger D. Shay, Jr., a member of the
Board of Trustees and the President of Shay Financial Services, Inc.
As compensation for investment advisory services, the Fund pays an investment
advisory fee monthly based upon an annual percentage of the average daily net
assets of each Fund as follows:
The investment advisory fee rate for the Money Market Fund is .15% of the
first $500 million, .125% of the next $500 million, and .10% of such net assets
in excess of $1 billion. The Adviser is currently voluntarily waiving its entire
fee. As of April 30, 2005, the assets for the Fund include a waived investment
advisory fee receivable in the amount of $5,816.
The investment advisory fee rate for the Adjustable Rate Mortgage (ARM) Fund
is .45% of the first $3 billion, .35% of the next $2 billion, and .25% of such
net assets in excess of $5 billion. The Adviser is currently voluntarily waiving
a portion of its fee so that the Fund pays .25% of
32
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
average daily net assets. As of April 30, 2005, the assets for the Fund include
a waived investment advisory fee receivable in the amount of $499,938.
The investment advisory fee rate for the Ultra Short Fund is .45% of the
average daily net assets. The Adviser is currently voluntarily waiving a portion
of its fee so that the Fund pays .25% of average daily net assets. As of April
30, 2005, the assets for the Fund include a waived investment advisory fee
receivable in the amount of $43,868.
The investment advisory fee rate for each of the Short U.S. Government Fund
and the U.S. Government Mortgage Fund, computed separately, is .25% of the first
$500 million, .175% of the next $500 million, .125% of the next $500 million,
and .10% of such net asset in excess of $1.5 billion.
The investment advisory fee rate for the Intermediate Mortgage Fund is .35% of
the first $500 million, .275% of the next $500 million, .20% of the next $500
million, and .10% of such net assets in excess of $1.5 billion. The Adviser is
currently voluntarily waiving a portion of its fee so that the Fund pays .25% of
average daily net assets. As of April 30, 2005, the assets for the Fund include
a waived investment advisory fee receivable in the amount of $23,885.
The Adviser has agreed to reduce or waive (but not below zero) its advisory
fees charged to the Money Market Fund, the Short U.S. Government Fund, the
Intermediate Mortgage Fund and the U.S. Government Mortgage Fund, to the extent
that the daily ratio of operating expenses to average daily net assets of each
Fund exceeds .75%.
Shay Financial Services, Inc. ("SFSI") serves the Trust as distributor (the
"Distributor"). The Distributor is a wholly-owned subsidiary of SISI, which is
majority owned by Rodger D. Shay, the Chairman of the Board of Trustees of the
Trust, and Rodger D. Shay, Jr., a member of the Board of Trustees and the
President of Shay Financial Services, Inc.
As compensation for distribution services, the Trust pays the Distributor a
distribution fee monthly in accordance with the distribution plan adopted by the
Trust, pursuant to Rule 12b-1 under the 1940 Act, based upon an annual
percentage of the average daily net assets of each Fund as follows:
The distribution fee rate for each of the Money Market Fund Class I Shares and
Short U.S. Government Fund is based upon an annual percentage of the combined
average daily net assets of both funds and is as follows: .15% of the first $500
million, .125% of the next $500 million, .10% of the next $1 billion, and .075%
of such combined net assets in excess of $2 billion. The Distributor is
currently voluntarily waiving a portion of its 12b-1 fee for the Class I Shares
of the Money Market Fund so that the Fund pays .05% of average daily net assets.
The Money Market distribution fee waiver amounted to $15,695 for Class I Shares
for the six month period ended April 30, 2005. The assets for the Money Market
Fund include a waived distribution fee receivable in the amount of $2,537 for
the Money Market Fund Class I Shares as of April 30, 2005.
The distribution fee rate for the Money Market Class D Shares is .60% of
average daily net assets. The Distributor is currently voluntarily waiving a
portion of the 12b-1 fees so that Total Fund Operating Expenses do not exceed
0.75% of average daily net assets. The Money Market distribution fee waiver
amounted to $9,552 for Class D Shares for the six month period ended April 30,
2005. The assets for the Money Market Fund include a waived distribution fee
receivable in the amount of $1,340 for the Money Market Fund Class D Shares as
of April 30, 2005.
The distribution fee rate for each of the Adjustable Rate Mortgage (ARM) Fund
and the Ultra Short Fund, computed separately, is .25%
33
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
of average daily net assets. The Distributor is currently voluntarily waiving a
portion of its fee so that the Adjustable Rate Mortgage (ARM) Fund and the Ultra
Short Fund each pay .15% of average daily net assets. The assets for the Funds
include a waived distribution fee receivable in the amount of $249,964 and
$21,934, respectively, as of April 30, 2005.
The distribution fee rate for each of the Intermediate Mortgage Fund and the
U.S. Government Mortgage Fund, computed separately, is as follows: .15% of the
first $500 million, .125% of the next $500 million, .10% of the next $500
million, and .075% of such net assets in excess of $1.5 billion.
BISYS Fund Services Ohio, Inc. ("BISYS, Ohio"), serves the Trust as
administrator (the "Administrator"), fund accountant and transfer agent (the
"Transfer Agent"). BISYS, Ohio is a subsidiary of The BISYS Group, Inc. The fee
rate for BISYS, Ohio's services for each of the Funds, computed separately, is
as follows: .03% of the first $1 billion, .02% of the next $1 billion, and .01%
of such net assets in excess of $2 billion, with a minimum annual fee of
$393,200 for the Trust. BISYS, Ohio also receives a $15.00 per account per fund
annual processing fee.
- --------------------------------------------------------------------------------
C. Transactions in shares of the Trust for the periods ended April 30, 2005 and
October 31, 2004, were as follows:
- --------------------------------------------------------------------------------
<Table>
<Caption>
MONEY MARKET FUND
------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
- ----------------------------------------------------------------------------------------------------
Share transactions Class I:
Sale of shares............................................ 91,144,102 212,174,352
Shares issued to stockholders in reinvestment dividends... 281,160 337,606
Shares repurchased........................................ (92,547,348) (221,365,484)
------------ ------------
Net increase (decrease)................................... (1,122,086) (8,853,526)
Shares outstanding
Beginning of period.................................... 31,894,313 40,747,839
------------ ------------
End of period.......................................... 30,772,227 31,894,313
============ ============
Share transactions Class D:
Sale of shares............................................ 264,708,380 385,481,528
Shares issued to stockholders in reinvestment dividends... 98,882 47,207
Shares repurchased........................................ (268,252,786) (389,965,369)
------------ ------------
Net increase.............................................. (3,445,524) (4,436,634)
Shares outstanding
Beginning of period.................................... 19,089,062 23,525,696
------------ ------------
End of period.......................................... 15,643,538 19,089,062
============ ============
</Table>
- --------------------------------------------------------------------------------
34
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE ULTRA SHORT
MORTGAGE (ARM) FUND FUND
--------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004 APRIL 30, 2005 OCTOBER 31, 2004
- -------------------------------------------------------------------------------------------------------------
Share transactions:
Sale of shares................. 118,807,769 227,675,417 4,966,218 18,676,184
Shares issued to stockholders
in reinvestment of
dividends................... 2,463,128 5,149,608 203,884 324,470
Shares repurchased............. (148,887,728) (360,583,381) (7,579,469) (14,857,663)
------------ ------------ ---------- -----------
Net increase (decrease)........ (27,616,831) (127,758,356) (2,409,367) 4,142,991
Shares outstanding
Beginning of period......... 337,306,907 465,065,263 29,506,245 25,363,254
------------ ------------ ---------- -----------
End of period............... 309,690,076 337,306,907 27,096,878 29,506,245
============ ============ ========== ===========
</Table>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHORT U.S. INTERMEDIATE MORTGAGE
GOVERNMENT FUND FUND
-------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004 APRIL 30, 2005 OCTOBER 31, 2004
- -------------------------------------------------------------------------------------------------------------
Share transactions:
Sale of shares.................. 30,490 3,507,202 616 678,786
Shares issued to stockholders in
reinvestment of dividends.... 120,965 269,378 244,298 442,694
Shares repurchased.............. (1,098,500) (11,118,104) (1,018,337) (6,108,666)
---------- ----------- ---------- ----------
Net increase (decrease)......... (947,045) (7,341,524) (773,423) (4,987,186)
Shares outstanding
Beginning of period.......... 14,441,347 21,782,871 31,158,479 36,145,665
---------- ----------- ---------- ----------
End of period................ 13,494,302 14,441,347 30,385,056 31,158,479
========== =========== ========== ==========
</Table>
- --------------------------------------------------------------------------------
35
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
U.S. GOVERNMENT
MORTGAGE FUND
-----------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
- -------------------------------------------------------------------------------------------------
Share transactions:
Sale of shares............................................ 809,412 1,395,535
Shares issued to stockholders in reinvestment of
dividends.............................................. 283,660 484,542
Shares repurchased........................................ (413,938) (5,487,343)
---------- ----------
Net increase (decrease)................................... 679,134 (3,607,266)
Shares outstanding
Beginning of period.................................... 15,760,092 19,367,358
---------- ----------
End of period.......................................... 16,439,226 15,760,092
========== ==========
</Table>
- --------------------------------------------------------------------------------
D. At April 30, 2005, Net Assets consisted of the following:
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE SHORT U.S. INTERMEDIATE U.S. GOVERNMENT
MONEY MARKET MORTGAGE ULTRA SHORT GOVERNMENT MORTGAGE MORTGAGE
FUND (ARM) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
Capital.............. $46,418,966 $3,098,577,751 $271,223,348 $144,872,681 $296,429,229 $177,457,259
Accumulated net
investment
income/(loss)...... -- (6,797,116) (473,893) (197,130) (142,175) (44,425)
Accumulated net
realized
gain/(loss)........ (15,151) (71,612,498) (4,929,144) (2,975,811) (9,100,104) (7,770,175)
Net unrealized
appreciation/
(depreciation) of
investments........ -- 9,837,113 294,139 (191,550) (194,647) 1,744,144
----------- -------------- ------------ ------------ ------------ ------------
$46,403,815 $3,030,005,250 $266,114,450 $141,508,190 $286,992,303 $171,386,803
=========== ============== ============ ============ ============ ============
</Table>
- --------------------------------------------------------------------------------
36
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
E. At April 30, 2005, liabilities for the Funds included:
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE SHORT U.S. INTERMEDIATE U.S. GOVERNMENT
MONEY MARKET MORTGAGE ULTRA SHORT GOVERNMENT MORTGAGE MORTGAGE
FUND (ARM) FUND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------
Investment advisory
fee payable........ 0 624,915 54,834 29,039 59,714 35,166
Administration fee
payable............ 1,320 56,301 7,481 3,952 8,116 4,777
Distribution fee
payable............ 7,968 374,951 32,901 17,423 35,829 21,100
Distributions
payable............ 88,829 8,060,259 757,636 427,722 959,499 668,006
Securities purchased
payables........... 0 98,879,832 0 0 0 0
Other liabilities.... 1,195 146,004 10,841 6,767 28,909 17,122
</Table>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F. For the six months ended April 30, 2005, purchases and proceeds from
sales/maturities of securities, other than short-term investments, were as
follows:
- --------------------------------------------------------------------------------
<Table>
<Caption>
ADJUSTABLE RATE SHORT U.S. INTERMEDIATE U.S. GOVERNMENT
MORTGAGE ULTRA SHORT GOVERNMENT MORTGAGE MORTGAGE
(ARM) FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
Purchases................ $ 935,187,560 $36,869,340 $82,978,550 $133,322,353 $67,181,844
============== =========== =========== ============ ===========
Sales and Maturities..... $1,144,408,340 $80,126,555 $88,730,341 $137,072,987 $77,687,149
============== =========== =========== ============ ===========
</Table>
- --------------------------------------------------------------------------------
37
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
(UNAUDITED)
TRUSTEES AND OFFICERS OF ASSET MANAGEMENT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
NUMBER OF
POSITION(S) HELD WITH PORTFOLIOS
TRUST, LENGTH OF TIME IN FUND OTHER
SERVED AND TERM OF PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND AGE OFFICE DURING PAST 5 YEARS OVERSEEN HELD
- -----------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Richard M. Amis........ Trustee since 1997. President, First Federal Community 6 First Financial Trust
630 Clarksville Street Indefinite Term of Office Bank since 1984; and Director, Company
Paris, TX 75460 First Financial Trust Company
Age: 54 since 1993
David F. Holland....... Trustee since 1993 and Retired; Chairman of the Board, 6 New England College
17 Ledgewood Circle from 1988 to 1989. Chief Executive Officer and of Finance
Topsfield, MA 01983 Indefinite Term of Office President of BostonFed Bancorp
Age: 63 Inc. from 1995 to 2005
Gerald J. Levy......... Vice Chairman of the Chairman since 1984 and Director 6 FISERV, Inc.;
4000 W. Brown Deer Road Board since 1997 and since 1963, Guaranty Bank, F.S.B. Republic Mortgage
Milwaukee, WI 53209 Trustee since 1982. since 1984 Insurance Company;
Age: 73 Indefinite Term of Office Guaranty Financial;
Federal Home Loan
Bank of Chicago
William A. McKenna, Trustee since 2002. Retired; Chairman and Chief 7 Asset Management Fund
Jr................... Indefinite Term of Office Executive Officer of Ridgewood Large Cap Equity
71-02 Forest Avenue Savings Bank from 1992 to 2004 Institutional Fund,
Ridgewood, NY 11385 Inc.; RSI Retirement
Age: 68 Trust; St. Joseph's
College; St.
Vincent's Services;
Boys Hope Girls Hope;
Calvary Hospital
Fund; Retirement
System Group, Inc.;
RS Group Trust
Company; Irish
Educational
Development
Foundation, Inc.;
Catholic University
of America; St.
Aloysius School;
American Institute of
Certified Public
Accountants
Christopher M. Owen.... Trustee since 2005. President and Chief Executive 6 Meriwest Mortgage,
5615 Chesbro Avenue Indefinite Term of Office Officer of Meriwest Credit Union LLC
San Jose, CA 95123 since 1995
Age: 58
</Table>
38
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
(UNAUDITED)
TRUSTEES AND OFFICERS OF ASSET MANAGEMENT FUND (CONTINUED)
<Table>
<Caption>
NUMBER OF
POSITION(S) HELD WITH PORTFOLIOS
TRUST, LENGTH OF TIME IN FUND OTHER
SERVED AND TERM OF PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND AGE OFFICE DURING PAST 5 YEARS OVERSEEN HELD
- -----------------------------------------------------------------------------------------------------------------------------
Maria F. Ramirez....... Trustee since 2005. President and Chief Executive 6 Independence
One Liberty Plaza, Indefinite Term of Office Officer of Maria Fiorini Ramirez Community Bank;
46th Floor Inc. (global economic and Schroder Hedge Funds
New York, NY 10006 financial consulting firm) since Bermuda; Pace
Age: 57 1992 University; Notre
Dame High School; Big
Brother and Big
Sister N.J.
INTERESTED TRUSTEES(1)
Rodger D. Shay(2)...... Chairman of the Board Chairman and Director of Shay 7 Horizon Bank, FSB
1000 Brickell Avenue since 1997 and Trustee Investment Services, Inc., Shay
Miami, FL 33131 since 1993 and Trustee Financial Services, Inc. and Shay
Age: 68 from 1985 to 1990. Assets Management, Inc. since 1997
Indefinite Term of Office
Rodger D. Shay, Trustee since 2002. President and Chief Executive 6 Family Financial
Jr.(2)............... Indefinite Term of Office Officer of Shay Financial Holdings, LLC; First
1000 Brickell Avenue Services, Inc. since 1997; Senior Financial Bank and
Miami, FL 33131 Vice President, Shay Assets Trust
Age: 45 Management, Inc. since 1997
OFFICERS
Edward E. Sammons, President since 1998. President of Shay Assets 7 None
Jr................... Term of Office Expires Management, Inc. since 1997
230 West Monroe Street 2006
Chicago, IL 60606
Age: 65
Robert T. Podraza...... Vice President and Vice President and Chief 6 None
1000 Brickell Avenue Assistant Treasurer since Compliance Officer of Shay
Miami, FL 33131 1998. Term of Office Financial Services, Inc. since
Age: 60 Expires 2006 1990 and 1997, respectively; Vice
President, Shay Investment
Services, Inc. since 1990; Vice
President, Shay Assets Management,
Inc.
Trent M. Statczar...... Treasurer since 2002. Financial Services Vice President 7 None
3435 Stelzer Road Term of Office Expires since 2003 and prior thereto
Columbus, OH 43219 2006 Director and Financial Services
Age: 33 Manager, BISYS Investment Services
Ohio, Inc.
Daniel K. Ellenwood.... Secretary since 1998. Chief Compliance Officer since 7 None
230 West Monroe Street Term of Office Expires 2004 and prior thereto
Chicago, IL 60606 2006 Operations/Compliance Officer and
Age: 35 Operations Manager, Shay Assets
Management, Inc.
</Table>
39
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
(UNAUDITED)
TRUSTEES AND OFFICERS OF ASSET MANAGEMENT FUND (CONTINUED)
<Table>
<Caption>
NUMBER OF
POSITION(S) HELD WITH PORTFOLIOS
TRUST, LENGTH OF TIME IN FUND OTHER
SERVED AND TERM OF PRINCIPAL OCCUPATION(S) COMPLEX DIRECTORSHIPS
NAME, ADDRESS AND AGE OFFICE DURING PAST 5 YEARS OVERSEEN HELD
- -----------------------------------------------------------------------------------------------------------------------------
Frederick J. Schmidt... Chief Compliance Officer Senior Vice President and Chief 7 None
90 Park Avenue since 2004. Term of Compliance Officer, CCO Services
10th Floor Office Expires 2006 of BISYS Fund Services since 2004;
New York, NY 10016 Chief Compliance Officer of four
Age: 45 other investment companies or fund
complexes that CCO Services of
BISYS Fund Services provides
compliance services since 2004;
President, FJS Associates
(regulatory consulting firm) from
2002 to 2004; Vice President,
Credit Agricole Asset Management,
U.S. from 1987 to 2002.
Christine A. Cwik...... Assistant Secretary since Executive Secretary, Shay Assets 6 None
230 West Monroe Street 1999. Term of Office Management, Inc. since 1999
Chicago, IL 60606 Expires 2006
Age: 55
Alaina V. Metz......... Assistant Secretary since Vice President since 2002 and 7 None
3435 Stelzer Road 1999 and Assistant prior thereto Chief Administrative
Columbus, OH 43219 Treasurer since 2002. Officer, BISYS Fund Services Ohio,
Age: 37 Term of Office Expires Inc.
2006
</Table>
- --------------------------------------------------------------------------------
(1) A trustee is an "interested person" of the Trust under the 1940 Act because
the officer holds certain positions with the Trust's Distributor and/or
Investment Adviser and because of his or her financial interest in Shay
Investment Services, Inc., parent company of the Trust's Investment Adviser,
Shay Assets Management, Inc., and Distributor, Shay Financial Services, Inc.
(2) Rodger D. Shay, Jr., Trustee, is the son of Rodger D. Shay, Chairman of the
Board of Trustees and Trustee.
40
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
A. SECURITY ALLOCATION:
MONEY MARKET FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Agency Obligations.......................................... 58.1%
Repurchase Agreements....................................... 42.1%
-----
Total....................................................... 100.2%
=====
</Table>
- --------------------------------------------------------------------------------
ARM FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Adjustable Rate Mortgage-Related Securities................. 76.0%
Fixed Rate Mortgage-Related Securities...................... 17.6%
Repurchase Agreements....................................... 8.8%
U.S. Treasury Obligations................................... 0.8%
-----
Total....................................................... 103.2%
=====
</Table>
- --------------------------------------------------------------------------------
ULTRA SHORT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Adjustable Rate Mortgage-Related Securities................. 74.9%
Fixed Rate Mortgage- Related Securities..................... 15.3%
Repurchase Agreements....................................... 8.5%
U.S. Treasury Obligations................................... 1.1%
-----
Total....................................................... 99.8%
=====
</Table>
- --------------------------------------------------------------------------------
SHORT U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Fixed Rate Mortgage-Related Securities...................... 46.5%
Adjustable Rate Mortgage-Related Securities................. 43.1%
U.S. Treasury Obligations................................... 8.5%
Repurchase Agreements....................................... 1.5%
-----
Total....................................................... 99.6%
=====
</Table>
- --------------------------------------------------------------------------------
41
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
INTERMEDIATE MORTGAGE FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Fixed Rate Mortgage-Related Securities...................... 56.7%
Adjustable Rate Mortgage-Related Securities................. 38.6%
Repurchase Agreements....................................... 3.3%
U.S. Treasury Obligations................................... 0.7%
Agency Obligations.......................................... 0.7%
-----
Total....................................................... 100.0%
=====
</Table>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE FUND
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENTAGE OF
SECURITY ALLOCATION NET ASSETS
- ---------------------------------------------------------------------------
Fixed Rate Mortgage- Related Securities..................... 90.0%
Repurchase Agreements....................................... 5.8%
U.S. Treasury Obligations................................... 2.3%
Agency Obligations.......................................... 1.9%
-----
Total....................................................... 100.0%
=====
</Table>
- --------------------------------------------------------------------------------
B. EXPENSE COMPARISON:
EXPENSE COMPARISON:
As a shareholder of Asset Management Fund you incur ongoing costs, including
management fees; distribution (12b-1) fees; and other Fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in Asset Management Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period from November 1, 2004 through April
30, 2005.
42
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information below, together with the amount you
invested, to estimate the expenses that you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the table under the
heading entitled "Expense Paid During Period" to estimate the expenses you paid
on your account during this period.
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING ACCOUNT EXPENSE PAID EXPENSE RATIO
ACCOUNT VALUE VALUE DURING PERIOD* DURING PERIOD**
11/1/04 4/30/05 11/1/04 - 4/30/05 11/1/04 - 4/30/05
- -----------------------------------------------------------------------------------------------------------
Money Market Fund........ Class I $1,000.00 $1,021.40 $0.90 0.18%
Class D 1,000.00 1,016.90 3.15 0.63%
ARM Fund................. 1,000.00 1,018.90 2.30 0.46%
Ultra Short Fund......... 1,000.00 1,021.70 2.41 0.48%
Short U.S. Government
Fund................... 1,000.00 1,010.60 2.44 0.49%
Intermediate Mortgage
Fund................... 1,000.00 1,014.90 2.40 0.48%
U.S. Government Mortgage
Fund................... 1,000.00 1,016.50 2.40 0.48%
</Table>
- --------------------------------------------------------------------------------
* Expenses are equal to the average account value times the Fund's annualized
expense ratio multiplied by the number of days in the most recent fiscal
half-year divided by the number of days in the fiscal year.
** Annualized.
43
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
HYPOTHETICAL EXAMPLE FOR
COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on each Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
- --------------------------------------------------------------------------------
<Table>
<Caption>
BEGINNING ENDING ACCOUNT EXPENSE PAID EXPENSE RATIO
ACCOUNT VALUE VALUE DURING PERIOD* DURING PERIOD**
11/1/04 4/30/05 11/1/04 - 4/30/05 11/1/04 - 4/30/05
- ------------------------------------------------------------------------------------------------------------
Money Market Fund......... Class I $1,000.00 $1,023.90 $0.90 0.18%
Class D 1,000.00 1,021.67 3.16 0.63%
ARM Fund.................. 1,000.00 1,022.51 2.31 0.46%
Ultra Short Fund.......... 1,000.00 1,022.41 2.41 0.48%
Short U.S. Government
Fund.................... 1,000.00 1,022.36 2.46 0.49%
Intermediate Mortgage
Fund.................... 1,000.00 1,022.41 2.41 0.48%
U.S. Government Mortgage
Fund.................... 1,000.00 1,022.41 2.41 0.48%
</Table>
- --------------------------------------------------------------------------------
* Expenses are equal to the average account value times the Fund's annualized
expense ratio multiplied by the number of days in the most recent fiscal
half-year divided by the number of days in the fiscal year.
** Annualized.
C. BOARD CONSIDERATIONS IN APPROVING ADVISORY AGREEMENTS:
The Investment Advisory Agreement between the Funds (other than the Ultra
Short Fund) and the Adviser (the "Advisory Agreement") continues from year to
year, subject to termination by the Fund or the Adviser, if such continuance is
approved at least annually by a majority of the outstanding shares of each Fund
or by the Board of Trustees, including a majority of the Trustees who are not
parties to the Advisory Agreement or "interested persons" of any party thereto
(the "Independent Trustees"). The separate Investment Advisory Agreement between
the Ultra Short Fund and the Adviser (the "Ultra Short Advisory Agreement" and
together with the Advisory Agreement, the "Advisory Agreements") continues from
year to year in the same manner as the Advisory Agreement, subject to the
continuation provisions described above.
The Advisory Agreements were most recently approved for continuation by the
Board of Trustees, including a majority of the Independent Trustees, at a
meeting on January 30, 2005. The Board of Trustees, including a majority of the
Independent Trustees, determined that the Advisory Agreements are in the best
interests of the Trust. The Independent Trustees met separately from the
"interested" Trustees of the Trust and officers or employees of the Adviser and
its affiliates to consider continuance of the Advisory Agreements and were
assisted by legal counsel in making their determination. The
44
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
Board of Trustees, including the Independent Trustees, did not identify any
single factor or group of factors as all-important or controlling, but
considered all factors together.
The Board reviewed each Fund's total returns over the short- and long-term as
compared to the rates of return of a peer group of funds, including the Lipper
ranking of each Fund over one-, three-, five- and ten-year periods, as
applicable. The Board noted that the Funds (other than the Ultra Short Fund)
limit their investments and investment techniques in order to qualify for
investment without specific statutory limitation by national banks, federal
savings associations and federal credit unions under current applicable federal
regulation while the peer group of funds do not face such limitations.
The Board discussed the nature, extent and quality of the services provided
under the Advisory Agreements, including the management of the investment
portfolios of the Funds, the provision of valuation services and compliance with
regulatory requirements, and determined that as to each Fund the services were
reasonable. The Board also considered the experience and track record of the
personnel responsible for managing the Funds. The Board noted the high caliber
personnel provided and the provision of investment performance that met the
special needs of the shareholders of the Funds. The Board reviewed the depth of
resources available in the Adviser to provide investment management services and
reviewed succession planning.
The Board also considered the advisory fees and the total expense ratios for
the Funds as compared to industry averages. It evaluated the fees and the
breakpoints in the advisory fees charged by the Adviser under the Advisory
Agreements, the voluntary fee waivers and/or expense limits in place for certain
Funds and considered whether any economies of scale realized by the Adviser are
shared with the Funds. The Board noted that the current fee structure is
comprised of breakpoints for each Fund except for the Ultra Short Fund. The
Board concluded that given the size of the Ultra Short Fund the institution of
breakpoints was not necessary at this time. As to the other Funds, the Board
concluded that there were economies of scale, which were appropriately shared
with shareholders. The Board determined that the fees charged by the Adviser for
managing each Fund are fair and reasonable.
The Board noted the Adviser's relationship with its affiliate, Shay Financial
Services, Inc., which acts as the Trust's distributor. The Board considered the
advantage that the distributor's knowledge of its clients' investing preferences
offers the Funds. The Board considered that the Adviser does not have any soft
dollar arrangements nor does its affiliate execute trades on behalf of the Funds
when securities are purchased. The Board concluded that any fallout benefits
were appropriately factored into the investment advisory fee rates.
The Board reviewed the Adviser's registration statement, the financial
statements of the Adviser and its parent company, SISI, for various periods, fee
waivers by the Adviser, and the profitability of the Adviser from November 1,
2003 to October 31, 2004. The Board concluded that the Adviser's profitability
was not unreasonable, particularly given the competitiveness of the fees
charged.
Based upon its evaluation of all material factors, the Board of Trustees,
including a majority of the Independent Trustees, determined that continuation
of the Advisory Agreements was in the best interests of each Fund and its
shareholders and determined that the Advisory Agreements should be approved for
continuance.
45
- --------------------------------------------------------------------------------
ASSET MANAGEMENT FUND
ADDITIONAL INFORMATION (CONTINUED)
APRIL 30, 2005 (UNAUDITED)
- --------------------------------------------------------------------------------
D. OTHER INFORMATION:
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling 800-527-3713; and (ii) on the Securities and
Exchange Commission's website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio
securities is available (i) without charge, upon request, by calling
800-527-3713; and (ii) on the Securities and Exchange Commission's website at
http://www.sec.gov.
A complete schedule of each Fund's portfolio holdings for the first and third
fiscal quarter of each fiscal year is filed with the Securities and Exchange
Commission on Form N-Q and is available on the Securities and Exchange
Commission's website at http://www.sec.gov. In addition, the schedules may be
reviewed and copied at the Securities and Exchange Commission's Public Reference
Room in Washington D.C. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
The Statement of Additional Information includes additional information about
Trustees and is available, without charge, upon request by calling 800-527-3713.
46
ASSET MANAGEMENT FUND
SHAY FINANCIAL SERVICES, INC.
NOTICE OF PRIVACY POLICY & PRACTICES
Asset Management Fund ("AMF") and Shay Financial Services, Inc., the
distributor of the Fund, ("Shay") recognize and respect the privacy expectations
of our shareholders. We do not sell information about current or former
customers or their accounts to third parties. We provide this notice to you so
that you will know what kinds of information we collect about shareholders of
the Fund and the circumstances in which that information may be disclosed.
COLLECTION OF CUSTOMER INFORMATION
We collect nonpublic personal information about our shareholders from the
following sources:
- Account Applications, shareholder profiles and other forms, which may
include a shareholder's name, address, social security number, and
information about a shareholder's investment goals and risk tolerance
- Account History, for example, copies of confirmations or statements which
may include information about investment transactions or the balances in a
shareholder's account
- Correspondence, written, telephonic or electronic between a shareholder and
AMF or Shay
DISCLOSURE OF CUSTOMER INFORMATION
We will not disclose any of the shareholder information we collect to third
parties who are not affiliated with the Fund or Shay other than to:
- to effect or administer transactions at your request
- as permitted by law -- for example, to service providers to the Fund, in
connection with an audit or examination, or to respond to a subpoena or
similar legal process
Shay may disclose any of the shareholder information it collects to its
affiliates that are engaged in a variety of financial services businesses, both
in connection with the servicing of customer accounts and to inform clients of
financial products and services that might be of interest.
SECURITY OF CUSTOMER INFORMATION
We maintain policies and procedures designed to assure only appropriate access
to, and use of shareholder information and physical, electronic and procedural
safeguards to protect nonpublic personal information of our shareholders. And we
require service providers to the Fund to maintain similar policies and
procedures.
We will adhere to the policies and practices described in this notice
regardless of whether you are a current or former shareholder of the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
For general information about any of the Portfolios by Asset Management Fund
including fees and expenses, please send for a prospectus and read it carefully
before you invest.
SHAY FINANCIAL SERVICES, INC.
230 West Monroe Street/Chicago, IL 60606
800-527-3713
1000 Brickell Avenue/Miami, FL 33131
800-327-6190
83 East Avenue/Norwalk, CT 06851
800-456-8232
8500 Freeport Parkway South/Irving, TX 75063
800-442-9825
4001 Stonewood Drive/Wexford, PA 15090
800-224-5177
350 Springfield Avenue/Summit, NJ 07901
800-553-6159
1035 Market Tower/10 W. Market Street/Indianapolis, IN 46204
800-879-9958
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
To obtain performance data and other account information, call toll free
800-527-3713.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTOR
Shay Financial Services, Inc.
230 West Monroe Street
Chicago, IL 60606
INVESTMENT ADVISER
Shay Assets Management, Inc.
230 West Monroe Street
Chicago, IL 60606
ADMINISTRATOR AND TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Vedder, Price, Kaufman & Kammholz, P.C.
222 North LaSalle Street
Chicago, IL 60601
CUSTODIAN
The Bank of New York
100 Church Street, 10th Fl.
New York, NY 10286
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Broad Street, Suite 2100
Columbus, OH 43215
CO-OPERATIVE BANK INVESTMENT FUND
REGISTRATION STATEMENT
Dated: March 30, 2005
PART A
Items 1-3.
Not applicable, as this Registration Statement is filed only
under the Investment Company Act of 1940 (the 1940 Act") and does not
relate to the registration of any securities of the Registrant under
the Securities Act of 1933.
Item 4. Investment Objectives, Principal Investment Strategies
and Related Risks
(a) The investment objective of Fund One is to maximize current income
consistent with liquidity of assets and safety of principal. Fund One was formed
to provide participating banks with a highly liquid, diversified, high-quality
investment vehicle designed to assist liquidity management.
The investment objective of Liquidity Fund is to maximize
current income consistent with liquidity of assets and safety of
principal. The Liquidity Fund was formed to provide participating
Banks with a highly liquid, diversified, high-quality investment
vehicle designed to assist liquidity management, while seeking
preservation of capital.
These fund objectives have been in place since the inception
of Fund One in 1985 and the Liquidity Fund in 1989. While those objectives
may be changed without shareholder approval, the Registrant has no current
plans or intention to change such objectives.
(b) In addition to maintaining cash on hand and in checking
accounts due from banks, Fund One invests principally in short and
intermediate term marketable debt securities issued by the United States
Government or by agencies of the United States, repurchase agreements,
reverse repurchase agreements and money market instruments. These
securities include, but may not be limited to: (A) certificates of
deposits due from any trust company, national banking association
or banking company, or any federally insured savings bank; (B) bonds
and other direct obligations of the United States or obligations
unconditionally guaranteed as to principal and interest by the
United States, (C) federal agency obligations which have unexpired
terms of five years or less; (D) repurchase agreements; and (E) certain
common money market instruments. No more than 5% of the Registrant's
assets, at the time of purchase, may be invested in the securities of
any one issuer except for direct obligations of the United States or
obligations guaranteed by the United States, and other obligations issued
under certain Federal programs or by certain federal agencies or
instrumentalities. Fund One is further restricted through the investment
policy maintained by the Registrant's Officers and Directors. The
investment policy for Fund One restricts the Registrant from a)
making any investment in equity securities, b) making any intermediate
or long-term investment in corporate (non-governmental) debt securities
and c) investing more than 25% of the Fund's total assets in the
securities of a particular industry other than U.S. Government or Federal
agency securities. Investments, except GNMA's, will have maturities of
less than five years. The dollar weighted average portfolio maturity for
Fund One is 1.4 yrs. Fund One's portfolio of investments was comprised
of items (A), (C), and (D), as of December 31, 2004.
In addition to maintaining cash on hand and in checking accounts
Due from banks, the Liquidity Fund invests principally in short term
marketable debt securities issued by the United States
Government or by agencies of the United States, bank money
instruments, repurchase agreements, short-term corporate debt
instruments, commercial paper, and reverse repurchase agreements.
These securities include, but may not be limited to: (A) certificates
of deposit due from any trust company, national banking association or
banking company, or any federally insured savings bank, co-operative
bank or savings & loan association ;(B) Federal funds sold; (C) bonds
and other direct obligations of the United States or obligations
unconditionally guaranteed as to principal and interest by the United
States, and issues of U.S. Government agencies and instrumentalities;
(D) repurchase agreements; (E) commercial paper which, when purchased,
is rated A-1 by Standard & Poor's Corporation ("Standard & Poor's) and/or
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or, if not rated,
has been determined to be of comparable high quality under procedures
adopted and approved by the Registrant's Board of Directors. Commercial
paper obligations may include variable amount of master demand notes;
short-term obligations of corporations; (F) Second Tier securities
to the extent permissible by Rule 2a-7 of the Investment Company Act
of 1940 (no more than 5% of the Fund's assets in the aggregate and no
more than 1% of the Fund's assets or one million dollars, whichever is
greater, may be invested in the second tier securities of any one
insurer) including commercial paper which when purchased is rated A-2
by Standard & Poor's or Prime-2 by Moody's or if not rated, has been
determined to be of comparable quality under procedures adopted and
approved by the Fund's Board of Directors; and (G) certain common
money market instruments which, when purchased are rated A-1 by Standard
and Poor's Corporation and /or Prime-1 by Moody's Investor Services or,
if not rated, has been determined to be of comparable high quality under
procedures adopted and approved by the Fund's Board of Directors.
All of the investments for the Liquidity Fund must have
a maturity or remaining maturities of 397 days or less; except for,
variable rate instruments, which provide for adjustment of interest
rates on set dates (currently daily or weekly) and which upon such
adjustment is expected to have a market values that approximate their
par values, may have a final maturity in excess of 397 days, but
for purposes of calculating the average maturity will be deemed to
have a maturity equal to (1)the period remaining until the next
readjustment of the interest rate if it is an instrument issued or
guaranteed by the United States Government or any agency thereof,
or (2)the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand. The Liquidity
Fund will maintain a dollar-weighted average maturity of 90 days or
less. The Liquidity Fund may invest more than 25% of its assets in
the banking industry through certificates of deposit and federal
funds sold in the ordinary course of its business. The Liquidity
Fund's portfolio of investments was comprised of items (A), (B),
(C), (D), (E), and (F), as of December 31, 2004.
The Registrant's board of directors has established
procedures designed to stabilize the per share net asset
value of shares of the Liquidity Fund at $1,000.Under repurchase
agreements entered into by the Registrant, the Registrant
purchases government securities from a seller subject to an
unconditional agreement to sell the same securities or other
assets back to the seller at a higher price. If a purchaser
under such a repurchase agreement does not assure its interest
by taking possession of a sufficient amount of assets, or the
market value of such assets does not remain sufficient, the
purchaser is at risk in the event that the seller under such
agreement does not fulfill its obligations under the agreement.
Repurchase agreements could involve risks in the event of a
default or insolvency of the other party to the agreement,
including possible delays or restrictions upon the Fund's
ability to dispose of the underlying securities. It is the
Registrant's policy to minimize risk under such agreements
by (a) having its custodian take possession of securities
purchased under such agreements and (b) determining that the
market value of the securities purchased under such an
agreement is adequate to secure its interest at the time of
purchase and over the life of the agreement.
The Registrant recently shortened the overall maturity
for both Fund One and Liquidity Fund in light of the increasing
short term interest rate environment and the net redemption
activity experienced by both funds in the later part of 2004.
The Liquidity Fund portfolio was repositioned in November, 2004
and the Fund One portfolio was repositioned in January, 2005. The
portfolio repositioning for each fund was consistent with the
objectives and investment strategies for each fund. The effect of
this action was to stabilize net asset value in the case of Fund One
and position the portfolios of each fund, so that, their ratio of
net investment income to average net assets would be more responsive
to the expected increases in short term interest rates in 2005.
The Funds may enter into reverse repurchase agreements
to meet short term liquidity needs of the Funds. These agreements
may not be in excess of three business days.
(c) The main risk factor in Fund One's performance is
interest rates. The yield and share price of Fund One change
daily based on changes in interest rates and market conditions,
and in response to other economic, political or financial events.
The Fund One's total return includes both income and price gains
or losses. While income is the most important component of
returns over time, Fund One's emphasis on income does not mean
Fund One invests only in the highest-yielding bonds and notes
available, or that it can avoid losses of principal. In general,
the Fund's net asset value (NAV) ,like bond and note prices rise
when interest rates fall and fall when interest rates rise
Longer-term bonds and notes are usually more sensitive to
interest rate changes. In other words, the longer the maturity
of a bond or note, in the Fund's portfolio, the greater the
impact a change in interest rates is likely to have on the
Fund's net asset value (NAV).
Debt securities are also subject to credit risk. Credit
risk is the risk that the issuer of a debt security might not make
interest and principal payments on the security as they become due.
Securities directly issued by the U.S. Treasury and certain U.S.
government agencies that are backed by the full faith and credit
of the U.S. government have little credit risk. Securities issued
by other agencies of the U.S. Government, such as the Federal Home
Loan Bank, the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association, that are not backed by the
full faith and credit of the U.S. Government and are backed only
by the credit of the issuing agency may also be subject to
increased credit risks.
An additional risk factor in Fund One's performance
is pre-payment risk. Many types of debt securities, including
mortgage backed securities and callable bonds and notes may be subject
to a prepayment risk. Prepayment risk occurs when the issuer of a
security can prepay principal prior to the security's maturity.
Securities subject to prepayment risk generally offer less potential
for gains during a declining interest rate environment, and similar
or greater potential for loss in a rising interest rate environment.
The risk of lower interest rates on reinvestments of prepayment amounts
will also result.
These risk factors may adversely effect Fund One's net
asset value, yield, total return and loss of money in an investment
in the Fund may result.
The main risk factor in Liquidity Fund's performance is
interest rates, the fluctuation of which will cause the income of
the Liquidity Fund to correspondingly change. The average portfolio
maturity may cause a delayed effect before the market interest rate
change is fully reflected in the Liquidity Fund's income performance.
An additional risk factor in the Liquidity Fund's
performance, to a limited extent, is credit risk. Credit risk is
the chance that the issuer of the security will be unable to pay
interest and principal in a timely manner. While the credit
quality of the Liquidity Fund's investment portfolio is extremely
high based on the principal investment strategies discussed above,
the Liquidity Fund is subject to some degree of credit risk.
The Liquidity Fund seeks to maintain, but does not
guaranty a stable net asset value of $1000 per share. In addition,
the shares being offered are not savings accounts or deposits and
are not insured or guaranteed by the Federal Deposit Insurance
Corporation, U.S. Government or its agencies.
(d) A complete schedule of the portfolio of investments is included in
the Registrant's semi-annual and annual offering circulars which are also
available on our website www.bankinvestmentfund.com.
The Registrant files its complete schedule of
portfolio holdings with the Commission for the first and third
quarters of each fiscal year on Form N-Q, which, are available
on the Commission's website at http://www.sec.gov. Also Forms N-Q
may be reviewed and copied at the Commission's Public Reference
Room in Washington, DC and that information may be obtained by
Calling 1-800-SEC-0330.
Item 5. Management, Organization and Capital Structure
(a) (1)The Registrant's current operation is performed
through a no-load, diversified, open-end investment fund
("Fund One") and a no-load, diversified, open-end money market
fund (the Liquidity Fund") (Fund One and the Liquidity Fund are
hereinafter referred to collectively as the "Funds").
The Registrant may establish in the future other
distinct investment funds with investment objectives different
from those which the Registrant has adopted for the Funds. The
Registrant's Charter, however, restricts the Registrant's
authority to invest its assets to certain specified types of
securities and other property.
The Registrants charter provides that it's Board
of Directors shall have full control of the business of the
Registrant, except for certain powers retained by the
Registrant's incorporators. In particular, the Board of
Directors has authority to invest the Registrant's assets,
subject to the limitations of the Registrant's Charter.
The Registrant does not currently employ the
services of an investment advisor. Investment decisions for the
Registrant are made by authorized officers of the Registrant,
pursuant to authority delegated by the Registrant's Board of
Directors of the Bank Investment Fund, 75 Park Plaza, Boston, MA
02116. The Registrant reserves the right to appoint an investment
advisor at any reasonable and customary fee as may be agreed when,
in the opinion of the Registrant's Board of Directors, the use of
such services would improve the Funds' performance.
(2) William F. Casey, Jr., President, has been the
Registrant's, primary investment officer since April 2000. Mr. Casey
previously held the position of Executive Vice President of the Bank
Investment Fund since its inception in 1985. Mr. Casey is also
President of the Co-operative Central Bank and served as Financial
Vice President from 1980 to 1986 and Executive Vice President and
Treasurer of the Co-operative Central Bank from 1986 to 2000.
Mr. Casey is a Certified Public Accountant and was employed in
several executive positions in both public accounting and banking
prior to 1980.
The Statement of Additional Information provides
additional information about the primary investment officer's
compensation. Mr. Casey is the portfolio manager of both Fund One
and the Liquidity Fund for the Bank Investment Fund. Other than
his duties as President of the Co-operative Central Bank and
President and primary investment officer of the Bank Investment
Fund, Mr. Casey manages no other accounts. Mr. Casey owns no
securities in either Fund One or the Liquidity Fund.
The Registrant does not currently utilize the services
of any person (other than its directors, officers or employees) to
provide significant administrative or business affairs management
services to the registrant.
The Registrant does not utilize the services of
a transfer agent or a dividend paying agent.
(3) There are no legal proceedings pending to which the
Registrant is a party.
(b) The Registrant has no capital stock; beneficial
ownership of the Registrant is represented by shares of
beneficial interest divided into two series, Fund One (Series 1)
and Liquidity Fund (Series 2). Each share within each such series
is equal in every respect to every other share of that series.
The shares of beneficial interest in the Registrant do not
provide holders of such shares with any voting rights. The right
to elect the Registrant's board of directors is vested in the
Registrant's incorporators, who are the directors of the Central Bank.
Under the Registrant's Charter, its shares may not be
issued to any persons other than Massachusetts co-operative banks,
Massachusetts savings banks, the Co-operative Banks Employees
Retirement Association, the Central Bank, The Savings Bank Life
Insurance Company of Massachusetts, the National Consumer
Co-operative Bank, Massachusetts trust companies, credit unions
incorporated in Massachusetts and federally chartered credit unions,
savings banks and savings and loan associations with their principal
places of business in Massachusetts and affiliates of other
eligible investors in the Registrant. Notwithstanding these charter
provisions, the Registrant is not currently offering its shares to
any credit unions, the Co-operative Banks Employees Retirement
Association, nor is it offering its shares to any affiliate of
an eligible investor other than a wholly-owned subsidiary of an
otherwise eligible investor. Moreover, shares of the Liquidity Fund
are not being offered to any affiliate of any eligible investor,
but rather is offered to eligible banking institutions only.
The Registrant's shares may not be transferred by eligible
investors to any persons other than such eligible investors
(except that the shares may be pledged to such other persons by
such investors, or may be transferred to the Central Bank).
If the Registrant's shares are acquired by any other person by
operation of law or by foreclosure upon the pledge of such shares
(or through transfer in the case of the Central Bank), and if such
condition is known to the Registrant, no dividend may be paid on
such shares after 30 days from the date of such acquisition.
furthermore, the Registrant must offer to repurchase the shares
from such person at net asset value of the shares, less any
dividends paid thereon, after said thirty days. If such offer is
refused, the redemption price which the holder of such shares may
obtain in any subsequent repurchase of those shares by the
Registrant is limited to the net asset value of the shares as
last determined during said thirty days.
Item 6. Shareholder Information
(a) Fund One's net asset value per share is determined
once daily as of 4:00 p.m. Eastern Standard Time, which is the
normal close of trading on the New York Stock Exchange is open for
business. The net asset value per share by Fund One is determined by
adding the market values of all securities and all other assets,
deducting liabilities and dividing by the number of shares outstanding.
The price at which an order is effected is based on the next calculation
of net asset values after the order is placed. U.S. debt securities are
normally valued on the basis of valuations provided by market makers.
Such prices are believed to reflect the fair value of such securities and
to take into account appropriate factors such as institutional size trading
in similar groups of securities, yield quality, coupon rate, maturity, and type
of issue, and other market data. Securities for which market quotations are
not readily available will be valued at fair value using methods determined
in good faith by or at the direction of the Board of Directors.
The Liquidity Fund's net asset value per share is
determined once daily as of 2:00 p.m. Eastern Standard Time, by
dividing the value of all investment securities and all other assets,
less liabilities, by the number of shares outstanding. The Liquidity Fund
is a money market fund and it's investment securities are valued based on
their amortized cost, which does not take into account unrealized
appreciation or depreciation. The Corporation's Board of Directors has
established procedures reasonably designed to stabilize the net asset
value per share at $1,000.00.
The Registrant, its custodial bank and the New York
Stock Exchange generally observe the following holidays
during the calendar year: New Year's Day, Martin Luther King
Day, President's Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day, and Christmas Day.
Additionally, the New York Stock Exchange observes Good Friday
as a holiday.
The Registrant continuously offers shares of each
series to all eligible investors and such shares (except shares of
which the redemption price has become fixed under special
conditions set forth in the Charter, as described on Capital
Structure under Item 6(b)), are sold and redeemed by each Fund
only at prices equal to the net asset value of the shares of such
Fund's series outstanding.
Shares of each Fund are offered for sale on days on
which the New York Stock Exchange is open for business. There is no
sales charge. The minimum initial investment is $50,000.00 Additional
investments may be made in any amount in excess of the minimum.
(b) Fund Purchase Instructions
1.Fund One (Series 1)
Call your correspondent bank and speak to your account
officer. Tell the officer that you want to transfer funds to
State Street Bank and Trust Company. Instruct the officer to
wire transfer the money before 4:00 p.m., Eastern Standard Time, to:
State Street Bank and Trust Company
Boston, Massachusetts
Routing number 0110-0002-8
For account of the Bank Investment
Fund, Fund One
Account number: 9006-930-3
1.Liquidity Fund (Series 2)
Call your correspondent bank and speak to your account
officer. Tell the officer that you want to transfer funds to
State Street Bank and Trust Company. Instruct the officer to
wire transfer the money before 2:00 p.m., Eastern Standard Time, to:
State Street Bank and Trust Company
Boston, Massachusetts
Routing number 0110-0002-8
For account of the Bank Investment
Fund, Liquidity Fund
Account number: 9006-884-2
If your correspondent bank account is with the State
Street Bank and Trust Company, contact your account officer and
instruct the officer to transfer funds from your account to the
account of the Bank Investment Fund, Fund One, Account number
9006-930-3, (before 4:00 p.m. Eastern Standard Time or to the
account of the Bank Investment Fund, Liquidity Fund, Account
number 9006-884-2 (before 2:00 p.m. Eastern Standard Time.
AFTER INSTRUCTING YOUR BANK TO TRANSFER FUNDS, PLEASE
CALL THE REGISTRANT AND TELL US THE AMOUNT YOU TRANSFERRED AND
THE NAME OF THE BANK SENDING THE TRANSFER. YOUR BANK MAY CHARGE
A FEE FOR SUCH SERVICES. REMEMBER, IT IS IMPORTANT TO DO THIS
BEFORE 4:00 P.M. EASTERN STANDARD TIME, (FOR FUND ONE) OR 2:00 P.M.
EASTERN STANDARD TIME, (FOR LIQUIDITY FUND).
The securities market in which the Fund buys and sells
securities usually requires immediate settlement in Federal
funds for all securities transactions; therefore, payment for the
purchase of each Fund's shares must be made by Federal funds or bank
wire which can be converted immediately into Federal funds. Orders
received prior to 4:00 p.m., Eastern Standard Time, (for Fund One) and
2:00 p.m., Eastern Standard Time, (for Liquidity Fund) will be invested
in shares of the appropriate Fund at the next determined net asset value.
(c) Fund Redemption Instructions
The Registrant will redeem shares of either series from
shareholders of record, without any charge, at the per share net
asset value next determined for such series after a request for
redemption is received. Redemption may be requested, if authorized
in advance and in writing, by telephone request to the Registrant.
Shareholders also may make redemption requests by signed written
request addressed to the Registrant. Call the Registrant by 4:00 p.m.,
Eastern Standard Time, (for Fund One) or 2:00 p.m., Eastern Standard
Time, (for Liquidity Fund) to redeem shares that day (Trade Date), for
payment on the following day (Settlement Date). When the amount to be
redeemed is at least $5,000, the Registrant will automatically wire
transfer the amount to your correspondent bank account at settlement.
The Registrant will make payment by check when the amounts redeemed are
less than $5,000.00.
Redemption of shares or payment may be suspended at times (a)
when the New York Stock Exchange is closed, (b) when trading on said
exchange is restricted, (c) when an emergency exists as a result of
which disposal by the Registrant of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the
Registrant to fairly determine the value of the net assets of the Funds,
or (d) during any period when the Securities and Exchange Commission,
by order, so permits; provided that applicable rules and regulations of
the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist.
The Registrant has not established any procedure whereby
a shareholder can sell its shares to the Registrant through a
broker/dealer.
The Registrant has not established any procedure which
would permit it to redeem shares involuntarily in accounts below
a certain number or value of shares.
(d) The Registrant's policy is to declare dividends
from net income on each day the Funds are open for business and
to make payments thereof to shareholders on a monthly basis.
Distributions of realized net capital gains, if any, are declared
and paid once a year.
Unless an investor elects in writing to receive
dividends on a cash basis, dividends and distributions are
credited to each investor's investment account as additional
shares in the Registrant of the same series as the shares on
which the dividend was paid, at net asset value on the date of
payment. An investor wishing to change the method by which it
receives dividends and distributions must notify the Registrant
in writing at least one week before the effective date of such
change.
(e) Frequent purchase and redemption of fund shares, if
excessive or abusive, for either fund could in a period of
declining interest rates, cause some dilution in the daily
ratio of net investment income to average net assets. In
addition frequent purchases and redemptions of Fund One
shares, if made for trading purposes only, could cause some
dilution in the net asset value per share. The objective of
both funds is to assist their institutional investors with
liquidity management. Daily purchase and redemption activity
especially in the Liquidity Fund is a normal and routine
transaction for these institutional investors. No excessive
or abusive activity has been noted to date. In view of this
and of the institutional nature of the eligible investors in
the funds, the board has not deemed it necessary to adopt
restrictive policies or procedures with respect to frequent
purchases and redemptions.
Currently the Registrant has no volume restriction
for purchases, sales or exchanges, and does not charge any
exchange, redemption or other transaction fee. The Registrant
imposes no minimum holding period.
(f) The Registrant has and intends to continue to meet
the requirements of Subchapter M of the Internal Revenue Code for
regulated investment companies with respect to Fund One and
intends to meet such requirements with respect to the Liquidity
Fund and, therefore, will not be liable for federal income taxes
to the extent that its earnings are distributed.
Each of the Funds must meet several requirements to
maintain its status as a regulated investment company. Among
these requirements are that at least 90% of its gross income be
derived from dividends, interest, payment with respect to
securities loans or other disposition of securities and certain
other income; that at the close of each quarter of its taxable
year at least 50% of the value of its assets consist of cash and
cash items, government securities, securities of other regulated
investment companies and, subject to certain diversification
requirements, other securities; and that no more than 30% of its
gross income be derived from sales of securities held for less
than three months.
In 2004, the Liquidity Fund incurred a federal
income tax liability of $53,854 on $181,035 of undistributed
income resulting from the non deductibility of $181,035 in
security losses on portfolio repositioning. The resulting loss
carry forward of $181,035 will expire on December 2012. A corporate
officer voluntarily contributed $53,854 to the Liquidity Fund in
order for the Liquidity Fund to pay this federal income tax
expense without either reducing the per share distribution for
December 2004 or reducing the per share net asset value below $1,000.
Dividends derived from interest, together with
distributions of any short-term capital gains, are taxable as
ordinary (interest) income whether or not reinvested in shares of the
Registrant. Dividends of the Registrant will not qualify for the
85% dividends received provisions of the Internal Revenue Code
for corporations. Investors in the Registrant may be
proportionately liable for taxes on income and gains of the
Registrant. The Registrant will inform its shareholders of the
amount and nature of any income or gains.
Shares of either Fund One or the Liquidity Fund may be
exchanged for shares of the other Fund on the basis of the respective
net asset values of the shares involved. Such exchange will be treated
as a sale of the surrendered shares and any gain on the transaction
may be subject to federal and state income taxes.
(g) Not applicable
Item 7. Distribution Arrangements
(a) No sales charge will be made and no sales load will be
involved in the distribution of any series of the Registrant's shares.
(a) 1-5 Not applicable
(b) The Registrant, by action of its Board of Directors, has
adopted a plan under Rule 12b-1 of the 1940 Act for the payment of
distribution expenses for the Funds (the "Plan"). The Plan provides
for quarterly review by the Registrant's Board of Directors of the
amount of and purposes for which expenditures were made under the Plan
and an additional, more extensive annual review in determining whether
the Plan will be continued. By its terms, continuation of the Plan
from year to year is contingent on an annual approval (1) by a
majority of the Registrant's Directors and (2) by a majority of the
Directors who are not "interested persons" as defined in the 1940 Act
and who have no direct or indirect financial interest in the operation
of the Plan or any related agreements ( All the Directors of the
Registrant are the Plan directors as described in (1) and (2) above.)
The Plan may be terminated at any time by vote of a majority of the
Plan directors.
The principal types of activities for which payments will
be made pursuant to the Plan are: (1) fees for membership in trade
associations, including associations in which investors eligible to
invest in one or more of the Funds are members; (2) sponsorship of
program activities at conferences attended by eligible investors, or
attendance at such conferences by the Registrant's personnel, and
related travel, meal and other expenses; (3) meals and other expenses,
including travel expenses, related to business meetings with investors
and potential investors in one or more of the Funds; (4) personal
items marked with the name or logo of the Registrant for distribution
to investors or eligible investors in the Funds;(5) printing and
postage expenses for written materials to be sent to eligible
investors who are not shareholders in the funds; (6) subscription to
publications for re-distribution to eligible investors of the
Registrant; (7) formulation and implementation of marketing and
promotional activities;(8) compensation to officer responsible for
sales and customer service and (9) any other activities of a
substantially similar nature which may result in the sale of Shares,
either directly or through other persons with which the Registrant may
enter into agreements related to the Plan in accordance with
Rule 12b-1.
The Plan is applicable to both Fund One and the
Liquidity Fund. Any expenses incurred pursuant to the Plan which
directly relate to the sale or distribution of shares of either
Fund, e.g., printing and mailing of offering materials, will be
allocated to and paid by the applicable Fund. Expenses which do
not directly relate to the sale and/or distribution of shares of
either Fund will be allocated between the Funds in accordance
with the annual budget as determine by the Board of Directors of
the Corporation to be fair and equitable or on such other basis
as the board of Directors of the Corporation may determine from
time to time to be fair and equitable. Because these expenses are
paid out of the Fund's assets on an ongoing basis, over time it will
increase the cost of your investment and may cost you more than
other types of sale charges.
Plan expenses may not exceed an amount computed at an annual
rate of .12 of 1% of each Fund's average daily net assets. Fund One
paid or accrued $21,392 (.03% of average net assets) and the Liquidity
Fund paid or accrued $33,559 (.01% of average net assets) pursuant to
this plan for the year ended December 31, 2004.
(c) Not applicable as the Registrant does not maintain
any Multiple Class Fund or Master-Feeder Fund.
Item 8 Not applicable, as this Registration Statement is filed
only under the Investment Company Act of 1940 (the 1940 Act")
and does not relate to the registration of any securities of the
Registrant under the Securities Act of 1933.
PART B
STATEMENT OF ADDITIONAL INFORMATION
FUND ONE (SERIES 1)
AND
LIQUIDITY FUND (SERIES 2)
CO OPERATIVE BANK INVESTMENT FUND (REGISTRANT)
d/b/a Bank Investment Fund
Item 9(a)
This Statement of Additional Information is not a
prospectus, and should be read in conjunction with Part A of the
Registrant's Statement dated March 30, 2005 under the Investment
Company Act of 1940 of which this Statement of Additional
Information is a part. A copy of the entire Registration
Statement, including Part A, may be obtained, without charge,
upon request from the Bank Investment Fund, 75 Park Plaza,
Boston, Massachusetts 02116-3934, (617) 695-0415 ( collect)
This Statement of Additional Information (SAI) provides
more detail about each fund and its policies. References are made
in this SAI to Part A of our Registrant's Statement dated
March 30, 2005. No other information or documents are
incorporated by reference in Part B, the SAI.
Dated: March 30, 2005
Item 9(b) Table of Contents
Item No. Title Page No.
10 Fund History 16
11 Description of The Fund and Its Investments 16
and Risks
12 Management of the Fund 22
13 Control Persons and Principal Holders 28
of Securities
14 Investment Advisory and Other Services 29
15 Portfolio Managers 31
16 Brokerage Allocation and Other Practices 32
17 Capital Stock and Other Securities 33
18 Purchase, Redemption and Pricing of 34
Shares
19 Taxation of The Fund 36
20 Underwriters 36
21 Calculations of Performance Data 36
22 Financial Statements 37
Item 10. Fund History
The Registrant commenced active operations as an
investment company on October 18, 1985. General information
regarding the Registrant is included under Item 6(a)(1) The Registrant
is a corporation organized effective April 7, 1985 pursuant to
a special act of the Commonwealth of Massachusetts (Massachusetts
Acts of 1984, Chapter 482, as amended by Massachusetts Acts of
1986, Chapter 244, Massachusetts Acts of 1990, Chapter 277,
Massachusetts Acts of 1991, Chapter 285, and Massachusetts Acts of
1993, Chapter 147) (collectively, the "Charter"). The Registrant's
chartered name is the Co-operative Bank Investment Fund, and the
Registrant does business under the name Bank Investment Fund. The
Registrant commenced active operations on October 18, 1985. The
Registrant was established to provide one or more mutual investment
funds for Massachusetts cooperative banks and other institutions.
From October 18, 1985 through October 12, 1988, the Registrant's
operations were performed through a single investment fund.
On October 12, 1988, the Registrant organized a second fund as a
money market fund. The Registrant is regulated by the Massachusetts
Commissioner of Banks.
Item 11. Description of the Fund and its Investments and Risks
(a) Classification
The Registrant is an open-end management company.
The Registrant operates as a diversified management company.
The Registrant's current operation is
performed through a no-load, diversified, open-end investment
fund ("Fund One") and a no-load, diversified, open-end money
market fund (the "Liquidity Fund") (Fund One and the Liquidity
Fund are hereinafter referred to collectively as the "Funds").
(b) Investments Strategies and Risks
In addition to maintaining cash on hand and in
checking accounts due from banks, Fund One invests principally in
short and intermediate term marketable debt securities issued by the
United States Government or by agencies of the United States, repurchase
agreements, reverse repurchase agreements and money market instruments.
Asset investments for Fund One include, but may not be
limited to: a) certificates of deposit due from any trust company,
national banking association or banking company, or any federally
insured savings bank, b) bonds and other direct obligations of the
United States or such obligations as are unconditionally guaranteed as
to principal and interest by the United States, including GNMA's, c)
federal agency obligations which have unexpired terms of five years
or less, d) repurchase agreements, and e) certain common money market
instruments.
In addition to maintaining cash on hand and in checking
accounts due from banks, the Liquidity Fund invests principally in
short-term marketable debt securities issued by the United States
Government or by agencies of the United States, bank money instruments,
repurchase agreements, short-term corporate debt instruments,
commercial paper, and reverse repurchase agreements.
Asset investments for Liquidity Fund include, but may not
Be limited to: a) certificates of deposit due from any trust company,
national banking association or banking company, or any federally insured
savings banks, co-operative bank or savings & loan association, b) Federal
Funds sold, c) bonds and other direct obligations of the United States
which are unconditionally guaranteed as to principal and interest by the
United States, and issues of U.S. Government agencies and
instrumentalities, d) repurchase agreements, e) commercial paper which, when
purchased, is rated A-1 by Standard & Poor's Corporation
("Standard & Poor's") and/or Prime-1 by Moody's Investors Service, Inc.
("Moody's") or, if not rated, has been determined to be of comparable high
quality under procedures adopted and supervised by the Fund's Board of
Directors. Commercial paper obligations may include variable amount of
master demand notes; short term obligations of corporations, f) Second
Tier securities to the extent permissible by Rule 2a-7 of the Investment
Company Act of 1940 (see investment restrictions) including commercial
paper which when purchased is rated A-2 by Standard & Poor's or Prime-2
by Moody's or if not rated, has been determined to be of comparable quality
under procedures adopted and approved by the Fund's Board of Directors,
and g) certain common money market instruments which when purchased are
rated A-1 by Standard and Poor's Corporation and/or Prime-1 by Moody's
Investor Services or, if not rated, has been determined to be of
comparable high quality under procedures adopted and approved by the
Fund's Board of Directors. All the above eligible investment must have
original maturities or remaining maturities of 397 days or less.
In addition, the Fund will maintain a dollar weighted average maturity of
90 days or less.
The main risk factor in Fund One's performance is
interest rates. The yield and share price of Fund One change
daily based on changes in interest rates and market conditions,
and in response to other economic, political or financial events.
The Fund One's total return includes both income and price gains
or losses. While income is the most important component of
returns over time, Fund One's emphasis on income does not mean
Fund One invests only in the highest-yielding bonds and notes
available, or that it can avoid losses of principal. In general,
the Fund's net asset value (NAV) ,like bond and note prices rise
when interest rates fall and fall when interest rates rise
Longer-term bonds and notes are usually more sensitive to
interest rate changes. In other words, the longer the maturity
of a bond or note, in the Fund's portfolio, the greater the
impact a change in interest rates is likely to have on the
Fund's net asset value (NAV).
Debt securities are also subject to credit risk. Credit risk
is the risk that the issuer of a debt security might not make interest
and principal payments on the security as they become due. Securities
directly issued by the U.S. Treasury and certain U.S. government
agencies that are backed by the full faith and credit of the U.S.
government has little credit risk. Securities issued by other
agencies of the U.S. government generally have low credit risks.
An additional risk factor in the Fund One's performance
is prepayment risk. Many types of debt securities, including
mortgage securities and callable bonds and notes may be subject
to a prepayment risk. Prepayment risk occurs when the issuer of
a security can prepay principal prior to the security's maturity.
Securities subject to prepayment risk generally offer less
potential for gains during a declining interest rate environment,
and similar or greater potential for loss in a rising interest
rate environment. The risk of lower interest rates on reinvestments of
prepayment amounts will also result.
These risk factors may adversely effect Fund One's net
asset value, yield, total return and loss of money in an
investment in the Fund may result.
The main risk factor in the Liquidity Fund's performance
is interest rates, the fluctuation of which will cause the income
of the Liquidity Fund to correspondingly change. The average
portfolio maturity may cause a delayed effect before the market
interest rate change is fully reflected in the Liquidity Fund's
income performance.
An additional risk factor in the Liquidity Fund's
performance, to a limited extent, is credit risk. Credit risk is
the chance that the issuer of the security will be unable to pay
interest and principal in a timely manner. While the credit
quality of the Liquidity Fund's investment portfolio is extremely
high based on the principal investment strategies discussed
above, the Liquidity Fund is subject to some degree of credit
risk.
(c) Fund Policies
(1) The restrictions and investment policies of the
Registrant for Fund One and Liquidity Fund are described as follows:
(i) The Registrant does not have any authority to issue
any securities, including senior securities, other than the
shares of beneficial interest which will be sold to eligible
investors pursuant to the Registrant's Charter.
(ii) The Registrant may borrow money under its Charter,
provided that the term of such borrowing may not be in excess of
three business days. This authority is designed to meet short-
term liquidity needs of the Registrant which might otherwise require
liquidation of portfolio assets. Any such borrowing,
including reverse repurchase agreements, would be limited to
borrowing allowable under Section 18 of the 1940 Act and
applicable regulations promulgated thereunder.
(iii) The Registrant has no power under its Charter to
underwrite securities of other issuers, or to acquire securities
that must be registered under the Securities Act of 1933 before
they may be offered or sold to the public.
(iv) The Registrant's Charter provides that no more
than 5% of the Registrant's assets may be invested in the
securities of any one issuer except for: (1) direct obligations
of the United States; (2) obligations unconditionally guaranteed
by the United States; (3) obligations of, or instruments issued
by and fully guaranteed by, the Federal National Mortgage
Association; (4) debentures, bonds or other obligations issued
by a Federal Home Loan Bank or consolidated Federal Home Loan
Bank debentures or bonds issued by the Federal Home Loan Bank
Board under the Federal Home Loan Bank Act; (5) debentures issued
by the central bank for co-operatives, or consolidated debentures
issued by said central bank and the 12 regional banks for co-
operatives under the Farm Credit Act of 1933 or any successors
thereto; (6) collateral trust debentures or other similar
obligations issued by any federal intermediate credit bank or
consolidated debentures or other similar obligations issued by
the 12 federal intermediate credit banks under the Federal Farm
Loan Act; (7) farm loan bonds issued by and federal loan bank
representing domestic farm labor housing loans authorized by
Section 514 of the Federal Housing Act of 1949, as amended by the
Federal Housing Act of 1961.
Fund One's investment policy restricts it from investing
more than 25% of its assets in the securities of any particular
industry other than U.S. Government or Federal agency securities.
The Liquidity Fund may invest more than 25% of its assets
in the banking industry through certificates of deposit and
Federal funds sold in the ordinary course of its business. However,
the Fund will not invest more than 35% of the Fund's assets in that
industry. The Fund will not concentrate its investments in any other
industry other than banking.
The Registrant is not authorized to, and does not, invest
in shares of common or preferred stock or in foreign investments of
any kind in either Fund One or Liquidity Fund.
(v) The Registrant's Charter allows the Registrant to
make and acquire certain real estate mortgage loans. The Registrant
does not currently intend to exercise such power. The Registrant
is authorized to acquire by foreclosure or otherwise and hold real
estate for sale, or other disposal, incidental or necessary to the
collection or servicing of said real estate mortgage loans, if any
The Registrant has no power under its Charter to engage
in the purchase or sale of commodities or commodity contracts.
(vi) The Registrant regularly invests in debt securities
as described in Item 4 (b) of Part A. In addition, the Registrant
may make short-term loans of portfolios securities to broker/
dealers collateralized by securities received from such broker/
dealers of like quality and value of which the Registrant will
take possession. The Registrant does not make any loans to other
persons.
(vii) Fundamental investment policies and restrictions
of the Registrant for Fund One and Liquidity Fund, followed in
connection with the Registrant's operations, are described under
Items 4 (a) of Part A of the Registration Statement of which this
Statement of Additional Information is a part. The Registrant
does not treat any other policy as a matter of "fundamental
policy" pursuant to Section 8(b) (3) of the 1940 Act.
The Registrant does not have any significant investment
policies other than as described above and in Item 4 of Part A of
the Registration Statement of which this Statement of Additional
Information is a part.
The Board of Directors of the Corporation has investment
discretion with regard to Fund One assets.
(d) Not Applicable
(e) Portfolio Turnover
Fund One's portfolio turnover ratio was 28.1% for
2004, compared to its portfolio turnover ratio of 102.2% for 2003 and
80.3 for 2002. The short term interest rates in 2001 through 2003
resulted in securities in the portfolio being called at an
accelerated rate, and resulted in larger than normal turnover ratio
in these years. Called security activity was greatly reduced in
2004 due to both the anticipation of and actual short-term interest
increases that occurred as discussed above.
(f) Disclosure of Portfolio Holdings
A complete schedule of the portfolio of investments
is included in the Registrant's semi-annual and annual offering
circulars which are also available on our website
www.bankinvestmentfund.com.
The Registrant files its complete schedule of
portfolio holdings with the Commission for the first and third
quarters of each fiscal year on Form N-Q, which, are available
on the Commission's website at http://www.sec.gov. Also Forms N-Q
may be reviewed and copied at the Commission's Public Reference
Room in Washington, DC and that information may be obtained by
Calling 1-800-SEC-0330.
Offering circulars, including a complete schedule
of the portfolio of investments for each fund, are mailed
semi-annually to all participating and eligible investors, all
of whom are institutional investors. Additional copies are
furnished upon request to eligible investors, and their
service providers or agents, such as auditors, bank regulators,
investment advisors and bank trade associations. These circulars
remain available for distribution upon request until the next
semi-annual update. No conditions or restrictions have been placed
on these offering circulars or the investment portfolio schedules
therein. This information is released on or before the 60th day
following the end of the relevant semi-annual period. The
Registrant's president and treasurer otherwise may, if needed,
authorize disclosure of the portfolio securities for either Fund
One or The Liquidity Fund.
Management and the board of directors of the
Registrant deem the above frequency of disclosure to be sufficient
and in the interest of all shareholders. Because both funds include
debt securities only of short to intermediate duration, no separate
fund advisor or underwriter is currently employed for either fund
and participants in each fund are institutional investors only,
procedures to address conflicts of interest beyond the Registrant's
code of ethics was not deemed necessary. The Registrant has no
ongoing arrangement, compensation or consideration regarding the
investment portfolio, portfolio management or portfolio disclosure.
Item 12. Management of The Fund
(a)
(1) (2) & (3) (4) (5) (6)
Position(s)
Name, Age Held with Principal Number of Other
And Address Registrant Occupation(s) Portfolios Director-
and during past in Fund ships of
Term of Office 5 years Complex Public
And Length of Overseen by Companies
Time Served Director Held
William F.
Casey, Jr.,60 President President 2 None
75 Park Plaza (since April of the Co-
Boston, MA 1 2000 )Exec- operative
02116-3934 utive Vice Central Bank
President Boston,
prior thereto Massachusetts
(since April
yearly 1, 2001
since 1985 Executive Vice
President and
Treasurer
Of The
Co-operative
Central Bank,
prior thereto
Susan L.
Ellis,55 Vice President Vice President 2 None
75 Park Plaza and Treasurer of The
Boston, MA Co-operative
02116-3934 yearly Central Bank
since 1985 Boston
Massachusetts,
Annemarie
Lee,46 Vice President Vice President 2 None
75 Park Plaza and Clerk of of The
Boston, MA the Corporation Co-operative
02116-3934 (since June 19, Central Bank
2003); and Boston,
Vice President Massachusetts
Prior thereto
yearly
since 2003
John R. Vice President Vice President 2 None
McSorley,62 of R. Seelaus & Co.,
75 Park Plaza Inc. Boston,
Boston, MA yearly Massachusetts
02116-3934 since 2003 (2002-2003); Vice
President of Paine
Webber, Inc. Boston
Massachusetts (1997-2000)
Item 12. Management of The Fund
(a)
(1) (2) & (3) (4) (5) (6)
Position(s)
Name, Age Held with Principal Number of Other
And Address Registrant Occupation(s) Portfolios Director-
and during past in Fund ships of
Term of Office 5 years Complex Public
And Length of Overseen Companies
Time Served by Director Held
Peter W. President of 2 None
Copelas,62 Director the Heritage
5 Mustang Co-operative
Circle Term:ends 2006 Bank Salem
Danvers since 2004 Massachusetts
MA. 01923
James F
Culhane,74 Director and Chairman of the 2 None
75 Charles Chairman of Board of the
Diersch St. Board North Cambridge
E. Weymouth Co-operative
MA. 02189 Term:ends 2006 Bank Cambridge,
since 2000 Massachusetts
(since May 2002)
and President
prior thereto
Alfonso
De Vito,68 Director* Chairman of the 2 None
26 Rustic St. Board of the
Newton, Term:ends 2006 Village Bank
MA. 02458 since 1999 Newton
Massachusetts
Edward T.
Mulvey,69 Director* Chairman of 2 None
50 Pond St. the Board of
Cohasset, Term:ends 2005 the Pilgrim
MA. 02081 since 1999 Co-operative
Bank
Cohasset,
Massachusetts
* Members of the Audit Committee.
Item 12. Management of The Fund
(a)
(1) (2) & (3) (4) (5) (6)
Position(s)
Name, Age Held with Principal Number of Other
And Address Registrant Occupation(s) Portfolios Director-
and during past in Fund ships of
Term of Office 5 years Complex Public
And Length of Overseen by Companies
Time Served Directors Held
Harold S.
Otto,54 Director President of 2 None
44 Laconia the Methuen
Circle, North Term:ends 2005 Co-operative
Andover MA, since 2002 Bank, Methuen,
01845 Massachusetts
Robert W.
Terravecchia, Jr.,40 Director* President of 2 None
15 Tayla Drive the Weymouth
Weymouth Term:ends 2007 Bank, Weymouth
MA, 01852 since 2003 Massachusetts
Joseph F.
Truskowski, Jr.,54 Director President of 2 None
55 Orchard Hill the Adams
North Adams MA, Term:ends 2007 Co-operative
02145 since 2004 Bank Adams
Massachusetts
* Member of the Audit Committee.
All Board members are independent directors.
(5) The number of portfolios in the fund complex
overseen by the directors above are two (Fund One & Liquidity Fund.)
(6) There are no other directorships held by the
directors listed above.
(b) Board of Directors
(1) The business of the Corporation is conducted by a
Board of Directors elected by the Corporation's Incorporators and
the Directors have investment discretion relative to Corporation
assets. The Incorporators of the Corporation are the Directors
of the Co-operative Central Bank, which is the statutory reserve
bank and insurer of deposits in excess of Federal deposit
insurance limitations for Massachusetts's co-operative banks.
(b)(2) Audit Committee
(i) The Audit Committee is appointed by the Board of
Directors of the Bank Investment Fund (the "Registrant") to assist
the Board in fulfilling its oversight responsibilities. The primary
duties and responsibilities of the Audit Committee are to:
monitor the integrity of the Registrant's financial reporting
process and systems of internal controls regarding finance, accounting
and legal compliance;
monitor the independence and performance of the Registrant's
independent auditors and controller performing independent audit
functions; and provide an avenue of communication among the
independent auditors, management, the controller and the Board
of Directors.
The Audit Committee has the authority to conduct any
investigation appropriate to fulfill its responsibilities, and it has
direct access to the independent auditors as well as anyone in the
company.
(ii) There are three directors that serve on the Audit
Committee: Mr. Alfonso De Vito, Mr. Edward T. Mulvey. and Mr. Robert W.
Terravecchia, Jr. Mr. Robert W. Terravecchia, Jr., an independent
director, has been determined by the Board of Directors to be the Audit
Committee financial expert. Mr. Terravecchia is both an attorney and
certified public accountant. In Massachusetts
(iii) The Audit Committee met four times in 2004 and is
scheduled to meet quarterly in 2005. The Audit Committee met with the
independent auditors prior to and following the 2004 annual audit. The
Audit Committee also met with the controller three times in 2004 to
review the report of internal audit activities. The Audit Committee is
scheduled to meet at least quarterly with the controller to review
internal audit activities in 2005.
(iv) Not Applicable
(b)(3) thru (b) (10) Not Applicable
(c) Compensation
The following table sets forth, for each of the
three highest paid officers and directors of the Registrant whose
total direct or indirect remuneration from the Registrant
exceeded $60,000 and for all directors and officers of the
Registrant as a group, all direct and indirect remuneration paid
or accrued by the Registrant for services in all capacities
during the year ended December 31, 2004.
(1) (2)and(5) (3) (4)
Name of Person, Aggregate Pension or Estimated
Position Compensation Retirement Annual
From Registrant Benefits Accrued Benefits
(1) As Part of Upon(2)
Fund Expenses Retirement
?????????????????????????????????????????????????????????????????
Peter W. Copelas
Director 3,500 0 0
James F. Culhane
Director 2,500 0 0
Alfonso De Vito
Director 5,300 0 0
Edward T. Mulvey
Director 5,300 0 0
Harold S. Otto
Director 4,500 0 0
Robert W. Terravecchia, Jr.
Director 5,300 0 0
Joseph F. Truskowski, Jr.
Director 4,500 0 0
Barry H. Whittaker.
Director 1,000 0 0
William F. Casey, Jr.
President 0 0 114,932
Susan L. Ellis
Vice President 44,027 4,403 123,595
Treasurer
John R. McSorley
Vice President 86,667 6,167 6,326
Officers and 193,794 13,685 380,130
Directors
as a Group
(twelve
persons
including
the above)
__________________________
(1) Includes Directors fees; does not include health and
hospitalization insurance benefits provided to all salaried
employees of the Registrant pursuant to plans which do not
discriminate in favor of officers and directors; Does not
include remuneration paid by the Co-operative Central Bank
for services provided to such Bank.
(2) Includes all estimated benefits accrued with respect to
the Co-operative Banks Employees' Retirement Association (the
retirement association for the Central Bank, the Registrant,
Massachusetts co-operative banks, and certain other
institutions), whether attributable to the Central Bank or
the Registrant.
_______________________________
(d) Sales Loads Not Applicable
(e) Code of Ethics
This policy establishes the standards of ethical
business behavior and personal conduct for the members of the
Board of Directors, officers and employees of the Bank
Investment Fund (the "Corporation") in accordance with the
provisions of Rule 17j-1 under the Investment Company Act of
1940, as amended.
Access persons are restricted from making any purchases
or sales of securities on the approved securities list (restricted
transaction securities) within 15 days following the initial
approved listing or within 15 days following the purchase or sale
of such listed security by the Corporation. Access persons should
also seek to avoid purchases and sales of such securities within
15 days prior to any purchases and sales of such securities by the
Corporation. Access persons are encouraged to contact the review
officer for pre-approval of any individual proposed purchases and
sales of such securities.
(f) Proxy Voting Policies Not Applicable
Item 13. Control Persons and Principal Holders of Securities
(a) Control Persons
No person is in a control relationship with the
Registrant.
(b) Principal Holders
As of February 28, 2005 the following seven (7)
investors of Fund One and two (2) investors of Liquidity Fund
owned of record 5% or more of the shares of beneficial interest.
The shares of beneficial interest do not provide the holders of
such shares with any voting rights.
% of ownership,
both beneficially
Holder and of record
Fund One
Co-operative Central Bank
Boston, Massachusetts 11.21%
North Cambridge Co-operative Bank
Cambridge, Massachusetts 9.21%
North Brookfield Savings Bank
North Brookfield, Massachusetts 9.21%
Easthampton Savings Bank/
ESB Securities Corp.
Easthampton, Massachusetts 7.69%
Institution for Savings
Newburyport, Massachusetts 7.45%
Bank of Canton/
Greenlodge Corporation
Canton, Massachusetts 6.93%
Braintree Co-operative Bank
Braintree, Massachusetts 6.86%
Liquidity Fund
Institution for Savings/
1820 Security Corporation
Newburyport, Massachusetts 8.76%
Easthampton Savings Bank/
ESB Securities Corp
Easthampton, Massachusetts 7.08%
(c) Management Ownership
The directors and officers of the Registrant are
not eligible to hold the equity securities of the Registrant; the
Registrant's Charter limits its eligible shareholders to certain
Massachusetts's banks and certain other institutions. The
directors are also directors and/or officers of co-operative
banks which own beneficial interests in shares of the Funds.
Item 14. Investment Advisory and Other Services
(a)-(f) The Registrant does not currently utilize
the services of any investment advisor. Investment decisions
for the Registrant are made by authorized officers of
the Registrant, subject to authority delegated by the
Registrant's Board of Directors. The Registrant reserves the
right to appoint an investment advisor at any reasonable and
customary fee as may be agreed when, in the opinion of the
Registrant's Board of Directors, the use of such services would
improve the Funds' performance. No person other than a director,
officer or employee of the Registrant furnishes advice to the
Registrant with respect to investments.
(g ) See Item 8(b) of Part A of the Registration
Statement of which this Statement of Additional Information is a
part for a discussion of the Plan adopted by the Registrant
pursuant to which it will incur expenses related to the
distribution of each series of Shares. The expenditures to be
made pursuant to the Plan may not exceed an amount calculated at
the rate of .12% per annum of the average daily net assets of
each of the Funds with respect to direct expenses and of both of
the Funds with respect to indirect expenses.
(1) The Registrant spent $54,951 ($21,392
Fund One and $33,559 Liquidity Fund) in the
year ended December 31, 2004 for the following
activities indicated under the Plan:
(i) $955 and $1,939 for advertising in
trade journals and similar publications for
Fund One and Liquidity Fund which the
Registrant determines are likely to be read
by representatives of eligible investors;
(ii) $5,028 and $5,065 for printing and
mailing the offering materials for Fund
One and Liquidity Fund to eligible
investors which are not currently owners
of shares of such Funds;
(iii, iv & vi) No amounts were spent for the
activities described in Item 15(g)(iii) and
(iv) of the instructions to Form N-lA; and
(v) $17,850 and $36,240 for compensation,
payroll taxes and benefits to officer
responsible for sales and customer service;
(vii-a) $2,962 and $6,014 for sponsorship of
annual subscriptions on behalf of
participating investors to IDC Financial
Publishing, Inc.;
(vii-b) $1,945 and $3,948 for other
promotional material;
(vii-c) $1,415 and $2,946 for sponsorship of
and/or attendance at conferences and
conventions of banking and other groups
including eligible investors as members or
participants; and
(vii-d) ($8,763) and ($19,593) for other related
expenses (telephone, travel, etc.).
(2) and (3) Not Applicable
(4) Because more than one fund will be operated by the
Corporation, operating expenses and expenses incurred pursuant
to the Plan related directly to a single fund operation will be
charged directly to that fund. Common or indirect expenses will
be allocated among funds in accordance with the annual budget as
determined by the Board of Directors of the Corporation to be
fair and equitable or on such other basis as the Board of
Directors of the Corporation may determine from time to time to
be fair and equitable.
(5) No interested person of the Registrant or director
of the Registrant who is not an interested person of the
Registrant has or will have any direct or indirect financial
interest in the operation of the Plan, except that compensation,
payroll taxes and other benefits to an officer responsible for
sales and customer service are deemed by the Registrant to be
expenses related to the distribution of the Registrant's shares
and counted toward the limits of the Plan.
(6) The Registrant is required by applicable state
statute to distribute offering materials and periodic reports to
all entities which are eligible investors of the Funds. The
Registrant believes that the investors in the Funds will benefit
from expenditures made to ensure that the Funds are operated in
accordance with applicable state law and from the spread of the
Funds, operating expenses over a larger pool of Fund assets
resulting from increased subscriptions to the Funds.
(h) (1), (2) and (4) Not Applicable
(h) (3) The portfolio securities of the Registrant are
held by a commercial bank pursuant to a custodian agreement.
The Registrant's custodian is State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
This custodian holds cash and investments, other than Federal
funds sold, and investments held under custody include
certificates of deposit. The Fund maintains Federal funds sold
balances with qualified national banks located in Massachusetts
and Massachusetts state chartered banks, including State Street
Bank and Trust Company. While the banks utilized have been
determined by the officers and directors of the Fund to qualify
as custodian banks themselves, the Fund acts as self custodian
for Federal funds sold.
The Registrant's independent public accountant is
Parent, McLaughlin & Nangle, Certified Public Accountants, Inc.,
160 Federal Street, Boston, Massachusetts 02110. This firm
functions as the Registrant's auditors in the preparation of
annual financial statements required by federal and state law,
and provides general accounting services to the Registrant.
The Registrant has also made arrangements with Parent
McLaughlin and Nangle for the audit scope to include the
confirmation of its federal funds sold position at least three
times during the fiscal year, at least two of which shall be
chosen by such accountants without prior notice to the Fund, in
accordance with paragraph (f) of Rule 17f-2.
Item 15. Portfolio Manager
The portfolio manager for Fund One and Liquidity Fund is
William F. Casey, Jr. At December 31, 2004, Mr. Casey had under
his management and supervision net assets of $49.5 million in Fund
One and $155.2 million in Liquidity Fund. At December 31, 2004, Mr.
Casey, as President and Chief Executive Officer of The Co-operative
Central Bank also had under his management and supervision total
assets of $71.9 million in the Bank's Reserve Fund and $87.6 million
in the Bank's Share Insurance Fund.
Mr. Casey has received no salary or other compensation or
fees from the Registrant since February 2000. Mr. Casey is a salaried
officer of The Co-operative Central Bank and received no performance
bonus or advisory fee therewith. While not deemed of material conflict,
the Registrant has the following relationships with The Co-operative
Central Bank (Mr. Casey's primary employer):
The incorporators of the Registrant are the directors of the
Co-operative Central Bank, which is the statutory reserve bank and
insurer of deposits in excess of federal deposit insurance limitations
for Massachusetts co-operative banks. The board of directors of the
Registrant is elected by the incorporators.
Mr. Casey is President of the Bank Investment Fund and president and
chief executive officer of The Co-operative Central Bank. The
Co-operative Central Bank held the following amounts in the Bank
Investment Fund Fund One at December 31, 2004: 4,875.1651 shares at
a cost of $4,852,414 and fair value of $4,773,632.
The Co-operative Central Bank is obligated under a non-cancelable
lease agreement expiring June 30, 2015 for the office space it
occupies. A portion of the office space is occupied under sublease
by the Bank Investment Fund. Rent expense charged to operations in
2004 for Fund One was $49,300 and for Liquidity Fund was $100,019.
The Registrant reimburses The Co-operative Central Bank for its
proportionate share of expense items used in common. As
reimbursement of allocated expenses, operating expenses paid to
the Co-operative Central Bank for the year ended December 31, 2004
was $63,300; $20,889 charged to Fund One operations and $42,411
charged to Liquidity Fund operations.
Under Massachusetts law, only co-operative banks and
certain other financial institutions are eligible investors in either
of the funds. Therefore, no officer, director or employee of the
Registrant owns any shares of the Registrant
Item 16. Brokerage Allocation and Other Practices
(a) Transactions in portfolio securities are effected,
by or through broker/dealers chosen by the Registrant.
Securities are received, delivered or exchanged by the
Registrant's custodian bank in connection with such transactions
upon written instructions received from such brokers or
representatives of the Registrant. The Registrant has to date
purchased and sold securities at prices reflecting broker/dealer
markup for which no separate commission has been paid.
Information regarding the amount of broker/dealer markups are not
provided by broker/dealers and it is not possible to calculate
the aggregate amount of such markups; however, the Registrant
monitors securities prices available from a number of
broker/dealers to ensure that competitive prices for securities
purchases are obtained.
(b) Not applicable
(c) The Registrant selects broker/dealers on the basis of prior
securities trading experience of the Registrant's management with
various broker/dealers and monitors the reliability and quality of
their trading executions to ensure that services rendered are
comparable, and that securities prices paid and commissions paid, if
any, are competitive, with those of other qualified broker/dealers.
(d) Not applicable
(e) Not applicable
Item 17. Capital Stock and Other Securities
(a) (1) Section 3 of the Registrant's Charter provides
that the Registrant will have no capital stock; beneficial
ownership of the Registrant is represented by shares of
beneficial interest without par value divided into Fund One (Series 1)
shares and Liquidity Fund (Series 2) shares. Such shares are referred
to as the Registrant's shares.
(2)(i) Fund shares may not be transferred by banks
holding such shares to any persons other than an eligible bank
(except that the shares may be pledged to such other persons or
they may be transferred to The Co-operative Central Bank,
hereinafter the "Central Bank"). If the Fund shares are acquired
by any other persons by operation of law or by foreclosure upon
the pledge of such shares (or through transfer, in the case of
the Central Bank), the Corporation must offer to repurchase the
shares from such person at net asset value of the shares. If
such offer is refused, no dividend may be paid by the Corporation
or Fund on such shares, and the redemption price which the holder
of such shares may obtain in any subsequent repurchase of those
shares by the Corporation or Fund is limited to the net asset
value of the shares on the date of the Corporation's offer.
(ii) In the event of any transfer, it is extremely important
to notify the Corporation immediately of any purchase, sale or
transfer of Fund shares not made through the Corporation or its
transfer agent. Immediate notification should be furnished to
the Corporation by telephone, with written notification as a
follow-up thereto. Prompt notification is essential to avoid any
delay in redemption offer and loss of earnings. Please remember
that a statutory restriction exists on the Corporation and it
would be unable to pay a dividend to an ineligible holder after
expiry of the 30-day repurchase period which is statutorily
available following such transfer. The Registrant is not aware
any material obligation or potential liabilities associated with
owning The Fund shares beyond the investment risks that were
discussed in Item 4(c) of Part A of the Registration Statement of
which the statement of Additional Information is a part.
(iii) The declaration of dividends is in the
discretion of the Registrant's Board of Directors, subject to
certain limitations specified in the Registrant's Charter.
(iv) For the reasons stated in the response to Item
6, "Capital Stock and other Surplus," of Part A of the
Registration Statement of which this Statement of Additional
Information is a part, there are no securities of the Registrant
having voting rights.
(v) All shares if each series of the Registrant
s shares have equal rights upon any liquidation to the assets of
the Fund for which such series of shares was issued.
(vi) Holders of the Registrant's shares do not have
pre-emptive rights
(vii) Holders of the Registrant's shares do not have
any conversion rights.
(viii) (F) See Item 7 (c), "Redemption of
Repurchase," of Part A of the Registration Statement of which
this Statement of Additional Information is a part for a
discussion of the redemption provisions applicable to the
Registrant's shares.
(ix) There are no sinking fund provisions applicable
to the Registrant's shares.
(x) Holders of the Registrant's shares have no
liability to further calls or to assessments by the Registrant.
(b) Not applicable
Item 18. Purchase, Redemption and Pricing of Shares
(a) See Item 7 (b) of Part A of the Registration
Statement of which this Statement of Additional Information is a
part as to the manner in which the Registrant's shares are
offered to eligible investors.
(b) Not applicable
(c) The Registrant's shares are offered and sold
pursuant to a private offering to eligible investors. The
offering price of the shares of each Fund's series is the net
asset value per share of that Fund's shares as of the date of
purchase of such shares. The Fund One net asset value per share
is determined once daily as of 4:00 PM Eastern Standard Time,
which is the normal close of trading on the New York Stock
Exchange. The Liquidity Fund's net asset value per share is
determined once daily as of 2:00 PM Eastern Standard Time.
The net assets value per share for each Fund is computed by taking
the value of all assets of the applicable Fund, subtracting its
liabilities, and dividing by the number of such Fund's series
outstanding.
With respect to Fund One, investments in United States
government and Federal agency debt securities held by the
Registrant are normally valued on the basis of valuations
provided by market makers. Such prices are believed to reflect
the fair value of such securities and take into account
appropriate factors such as institutional size, trading in
similar groups of securities, yield quality, coupon rate,
maturity, type of issue, and other market data.
The Liquidity Fund's investment securities are valued
based on their amortized cost without taking into account
unrealized appreciation or depreciation. This method of
valuation involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods
during which values, as determined by amortized cost, is higher
or lower than the price the Liquidity Fund would receive if it
sold the instrument.
The valuation of portfolio instruments based upon their
amortized cost and the maintenance of the Liquidity
Fund's per share net asset value of $1,000 is permitted in
accordance with Rule 2a-7 of the 1940 Act, subject to the
adherence by the Liquidity Fund to certain conditions. The
Liquidity Fund must (I) maintain a dollar-weighted average
maturity of 90 days or less, (ii) purchase only instruments
having remaining maturities of one year or less, and (iii) invest
only in securities determined by the Registrant's Board of
Directors to present minimal credit risks and which are of high
quality as determined by a major rating service, or, in the case
of any instrument which is not rated, which are of comparable
quality as determined by the Registrant's Board of Directors.
The Board of Directors has established procedures designed to
stabilize the Liquidity Fund's net asset value per share at
$1,000. Such procedures will include review of the Liquidity
Fund's investments by the Board of Directors, at such intervals
as they may deem appropriate, to determine whether the Liquidity
Fund's net asset value calculated by using available, market
quotations deviates from $1,000 per share and, if so, whether
such deviation may result in material dilution or is otherwise
unfair to existing shareholders. In the event the Board of
Directors determines that such a deviation exists, it will take
such corrective action as it regards as necessary and
appropriate, including (i) the sale of portfolio instruments
prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity, (ii) withholding dividends,
or (iii) establishing a net asset value per share by using
available market quotations.
The information requested in Instructions 2 and 3 of
Item 17 are not applicable to either of the Registrant's Funds.
A specimen price make up sheet, as requested by Instruction 4, is
furnished as part of Exhibit 19.
(d) The Registrant has not received an order of
exemption from Section 18(f) of the 1940 Act from the Commission
nor filed a notice of election pursuant to Rule 18f-1.
(e) Not applicable
Item 19. Taxation of the Fund
(a) See discussion under Item 7(c) of Part A of the
Registration Statement of which this Statement of Additional
Information is a part.
(b) In 2004, the Liquidity Fund incurred a federal
income tax liability of $53,854 on $181,035 of undistributed
income resulting from the non deductibility of $181,035 in
security losses on portfolio repositioning. The resulting loss
carry forward of $181,035 will expire on December 2012. A corporate
officer voluntarily contributed $53,854 to the Liquidity Fund in
order for the Liquidity Fund to pay this federal income tax
expense without either reducing the per share distribution for
December 2004 or reducing the per share net asset value below $1,000.
Item 19. Underwriters
(a) Not Applicable
Item 20. Calculations of Performance Data
(a) (1) Yield. The yield for the Liquidity Fund for
the seven-day period ended December 31, 2004 was 1.86%. Yield is
calculated based on the 7-day period ending on the date of the
most recent statement of Assets and Liabilities as included
herein, using the formula prescribed by Item 21 (a) (2) of Form
N-1A. A schedule of the computation of yield is furnished as
part of Exhibit 16
(b) (1) Total Return. The total return for Fund One
for the year ended December 31, 2004 was .71%; total return for
the five years ended December 31, 2004 was 4.35%; Total return
for the ten years ended December 31, 2004 was 5.41%.
Fund One's total return for each of the foregoing
periods was computed by finding, through the use of the formula
prescribed by Item 21 (b) (1) of Form N-1A, the average annual
compounded rates of return over the period that equates an
assumed $1,000 invested to the value of the investment at the end
of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of Fund
One are assumed to have been reinvested when received. A
schedule of the computation of total return is furnished as part
of Exhibit 16
(b) (2) Yield. The yield for Fund One for the thirty-
day period ended December 31, 2004 was 2.62%. Yield is calculated
based on the 30-day period ending on the date of the most recent
statement of Assets and Liabilities as included herein, using the
formula prescribed by Item 21 (b) (2) of Form N-1A. A schedule
of the computation of yield is furnished as part of Exhibit 16
Item 21. Financial Statements
Financial Statements of Fund One of the Registrant for
the year ended December 31, 2004 and the report of the
Registrant's independent certified public accountants thereon for
the year ended December 31, 2004 are included herewith.
Financial Statements of the Liquidity Fund of the Registrant for
the year ended December 31, 2004 and the report of the
Registrant's independent certified public accountants thereon for
the year ended December 31, 2004 are also included herewith.
BANK INVESTMENT FUND FUND ONE
(Series 1)
FINANCIAL STATEMENTS
For the year ended December 31, 2004
BANK INVESTMENT FUND-FUND ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<s> <c>
ASSETS:
INVESTMENTS IN SECURITIES, at value
(Identified cost $48,099,517) $ 47,433,898
REPURCHASE AGREEMENTS 1,810,000
INTEREST RECEIVABLE 351,339
OTHER ASSETS 210
CASH 89,601
------------
TOTAL ASSETS 49,685,048
------------
LIABILITIES:
DIVIDENDS PAYABLE 44,690
ACCRUED EXPENSES 72,708
------------
TOTAL LIABILITIES 117,398
------------
NET ASSETS: (Equivalent to $979.1735 per share based on 50,621.9280 shares of
beneficial interest outstanding) $ 49,567,650
============
REPRESENTED BY:
Paid-in Capital $ 67,442,844
Accumulated net losses on investments (17,209,575)
Unrealized depreciation of investments-net (665,619)
------------
TOTAL NET ASSETS $ 49,567,650
============
See notes to financial statements.
21
BANK INVESTMENT FUND-FUND ONE
STATEMENT OF OPERATIONS
Year Ended December 31, 2004
<s> <c> <c>
INVESTMENT INCOME: $1,656,310
EXPENSES:
Compensation, payroll taxes and benefits-officers $46,428
Compensation, payroll taxes and benefits-other 52,354
Occupancy 49,300
Professional fees 26,800
Distribution expenses 21,392
Equipment and data processing 15,684
Directors' fees 10,400
Insurance expense 9,200
Other bank fees 6,800
Postage and telephone 6,400
Meetings and travel 6,100
Shareholder reports 5,028
Other expenses 2,236
Stationary and supplies 2,100
-------
TOTAL EXPENSES 260,222
----------
INVESTMENT INCOME-NET 1,396,088
----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investments (131,193)
Change in net unrealized depreciation on investment securities (823,733)
----------
Net realized and unrealized loss on investments (954,926)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 441,162
==========
See notes to financial statements.
22
BANK INVESTMENT FUND-FUND ONE
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
------------------------------
2004 2003
---- ----
<s> <c> <c>
INCREASE IN NET ASSETS FROM OPERATIONS:
Investment income-net $ 1,396,088 $ 4,178,783
Net realized gain (loss) on investments (131,193) 121,729
Unrealized depreciation-net (823,733) (1,786,666)
------------ -------------
Net increase in net assets resulting from operations 441,162 2,513,846
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net (1,396,088) (4,178,783)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST-
NET DECREASE (39,412,385) (123,092,432)
------------ -------------
TOTAL DECREASE IN NET ASSETS (40,367,311) (124,757,369)
NET ASSETS:
Beginning of year 89,934,961 214,692,330
------------ -------------
End of year $ 49,567,650 $ 89,934,961
============ =============
See notes to financial statements.
23
BANK INVESTMENT FUND-FUND ONE
PORTFOLIO OF INVESTMENTS
December 31, 2004
Obligations of Federal Agencies-93.5%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
Federal Home Loan Bank $ 4,000,000 2.04% 03/03/06 $ 3,953,502
4,000,000 2.125 03/17/06* 3,955,355
4,000,000 2.00 07/10/06* 3,930,412
4,000,000 2.00 07/14/06* 3,930,487
4,000,000 2.075 07/28/06 3,931,691
2,000,000 2.30 12/29/06 1,960,196
4,000,000 2.25 01/29/07 3,912,336
4,000,000 2.66 02/13/07 3,943,674
4,000,000 2.50 04/30/07 3,920,000
----------- -----------
$34,000,000 (Cost $34,000,000) $33,437,653
----------- -----------
Federal Home Loan Mortgage
Corporation $ 5,000,000 3.875% 02/15/05 $ 5,008,373
4,000,000 2.08 05/26/06* 3,942,544
4,000,000 2.15 06/02/06 3,945,328
----------- -----------
$13,000,000 (Cost $12,999,517) $12,896,245
----------- -----------
Total Federal Agencies
Obligations (Cost $46,999,517) $46,333,898
-----------
Certificates of Deposit-2.2%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
NCB, FSB $ 1,000,000 2.15% 01/20/05 $ 1,000,000
NCB, FSB 100,000 2.20 02/08/05 100,000
----------- -----------
$ 1,100,000 (Cost $ 1,100,000) $ 1,100,000
----------- -----------
<FN>
- --------------------
* May be subject to call by issuer prior to maturity date.
</FN>
See notes to financial statements.
24
BANK INVESTMENT FUND-FUND ONE
PORTFOLIO OF INVESTMENTS (continued)
December 31, 2004
Repurchase Agreement-3.6%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
$1,810,000 Repurchase Agreement dated December 31, 2004 with
Morgan Stanley Dean Witter, Inc. due January 3, 2005
with respect to $1,805,000 U.S. Treasury Note 6.50% due
May 15, 2005-maturity value $1,810,324.29 for an ef-
fective yield of 2.15%.
(Cost $ 1,810,000) $ 1,810,000
-----------
Total Investments-99.3% (Cost $49,909,517) $49,243,898
-----------
Other assets in excess of liabilities-0.7% 323,752
-----------
Net assets-100% $49,567,650
===========
See notes to financial statements.
25
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Organization:
The Bank Investment Fund (the "Corporation") was organized effective
April 7, 1985 pursuant to a Special Act of the Commonwealth of
Massachusetts (Acts of 1984, Chapter 482, as amended,) under its chartered
name "Co-operative Bank Investment Fund" and does business under the name
"Bank Investment Fund." The Corporation is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
Corporation invests and manages two mutual investment funds derived from
the voluntary subscriptions made by eligible investors.
Fund One (the "Fund") is a no-load, diversified, open-end investment
fund. Fund shares are currently offered to the following eligible
investors: Massachusetts Co-operative Banks, Massachusetts Savings Banks,
Massachusetts Trust Companies, Federally Chartered Savings Banks and
Savings and Loan Associations with their principal place of business in
Massachusetts, The Co-operative Central Bank Reserve Fund, The Savings Bank
Life Insurance Company of Massachusetts, the National Cooperative Bank, and
directly or indirectly wholly-owned subsidiaries of such institutions.
Because more than one fund will be operated by the Corporation,
operating expenses related directly to a single fund operation will be
charged directly to that fund. Common or indirect expenses will be
allocated among funds in proportion to the ratio of the net assets of each
fund to total net assets of the Corporation or on such other basis as the
Board of Directors of the Corporation may determine from time to time to be
fair and equitable.
NOTE 2. Significant Accounting Policies:
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of
management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
26
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Investment security valuation:
U.S. debt securities are normally valued on the basis of valuations
provided by market makers. Such prices are believed to reflect the fair
value of such securities and to take into account appropriate factors such
as institutional size trading in similar groups of securities, yield
quality, coupon rate, maturity, type of issue, and other market data.
Securities for which market quotations are not readily available will be
valued at fair value using methods determined in good faith by or at the
direction of the Board of Directors.
Accounting for investments:
Security transactions are accounted for on the trade date (date the
order to buy or sell is executed). In computing net investment income prior
to January 1, 1997, the Fund did not amortize premiums or accrete discounts
on fixed income securities in the portfolio, except those original issue
discounts for which amortization is required for federal income tax
purposes. Since January 1, 1997, the Fund amortizes premiums or accretes
discounts on related fixed income securities, which change had an
immaterial effect on investment income. Premiums, if any, and discounts are
amortized or accreted on a straight line basis, which approximates the
income method. Additionally, with respect to market discount on bonds
issued after July 18, 1984, a portion of any capital gain realized upon
disposition may be recharacterized as taxable ordinary income in accordance
with the provisions of the 1984 Tax Reform Act. Realized gains and losses
on security transactions are determined on the identified cost method.
Repurchase agreements:
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying investments to ensure the existence of a proper level of
collateral.
Federal income taxes:
The Corporation's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. The Fund realized a
tax basis loss of ($106,266) during 2004, resulting in a remaining capital
loss carryforward of ($128,714) at December 31, 2004. Such capital loss
carryforward will reduce the Fund's taxable income arising from future net
realized gain on investments, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income tax. Such capital loss carryforward will
expire on December 31, 2008 ($22,448) and December 31, 2012 ($106,266).
27
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Dividends to shareholders:
The Fund distributes all of its net investment income on a daily
basis. Dividends are declared on each day that the Fund is open for
business. Investors receive dividends in additional shares unless they
elect to receive cash. Payment is made in additional shares at the net
asset value on the payable date or in cash, on a monthly basis.
Distributions of otherwise taxable realized net capital gains, if any, are
declared and paid once each year and are reinvested in additional shares at
net asset value or, at each shareholder's option, paid in cash.
Net asset value:
The net asset value per share is determined daily by adding the
appraised value of all securities and all other assets, deducting
liabilities and dividing by the number of shares outstanding.
NOTE 3. Security Transactions:
The cost of securities purchased and the proceeds from the sales of
securities, all of which were Obligations of U.S. Treasuries and Federal
Agencies and bank certificates of deposit, (excluding short-term
investments) aggregated $16,206,388 and $54,834,749, respectively for the
year ended December 31, 2004. As of December 31, 2004, unrealized
depreciation of investments was ($665,619); accumulated net realized loss
on investment transactions totaled ($17,209,575).
NOTE 4. Distribution Expenses:
The Fund has adopted a Plan of Distribution (the "Plan"), pursuant to
rule 12b-1 under the Investment Company Act of 1940, to use the assets of
the Fund to finance certain activities relating to the distribution of its
shares to investors. The Plan authorizes the Fund to pay for the cost of
preparing, printing, and distributing offering circulars to prospective
investors, for certain other direct or indirect marketing expenses, direct
payments to sales personnel, and for the cost of implementing and operating
the Plan. Plan expenses may not exceed an amount computed at an annual rate
of .12 of 1% of the Fund's average daily net assets. The Fund paid or
accrued $21,392 (.03% of average net assets) pursuant to this Plan for the
year ended December 31, 2004.
28
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5. Pension Plans:
The Fund is a participating employer in the Co-operative Banks
Employees Retirement Association, and has, in effect, a Defined
Contribution Plan covering all eligible officers and employees. Under the
plan, contributions by employees are doubled by the Fund, up to a maximum
of 10% of each employee's salary. Effective January 1, 1989, the Fund also
participates in a Defined Benefit Plan, which covers all eligible
employees, and is funded currently. The Fund's contributions to these
multi-employer plans for the year ended December 31, 2004 was $15,777.
NOTE 6. Shares of Beneficial Interest:
Chapter 482 of the Acts of 1984, as amended, of the Commonwealth of
Massachusetts permits the directors to issue an unlimited number of full
and fractional shares of beneficial interest (no par, non-voting, with a
stated value of $1,000 per share). As of December 31, 2004 capital paid-in
aggregate was $67,442,844.
Transactions in shares of beneficial interest are summarized as
follows:
Year Ended Year Ended
December 31, 2004 December 31, 2003
---------------------------- ------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<s> <c> <c> <c> <c>
Sold 17,109.5805 $ 16,966,217 74,508.0791 $ 74,259,582
Issued in reinvestment of dividends 659.0243 649,667 1,564.0312 1,557,657
------------ ------------ ------------- -------------
17,768.6048 17,615,884 76,072.1103 75,817,239
Redeemed 57,782.0128 57,028,269 200,027.2810 198,909,671
------------ ------------ ------------- -------------
Net decrease (40,013.4080) $(39,412,385) (123,955.1707) $(123,092,432)
============ ============ ============= =============
NOTE 7. Transactions With Related Parties:
The Incorporators of the Corporation are the Directors of The Co-
operative Central Bank, which is the statutory reserve bank and insurer of
deposits in excess of Federal deposit insurance limitations for
Massachusetts co-operative banks. The Board of Directors of the Corporation
is elected by the Incorporators.
The Fund reimburses The Co-operative Bank and receives reimbursement
from the Bank Investment Fund-Liquidity Fund for its proportionate share of
expense items used in common. All fees and expenses for the Fund are
estimated and accrued daily. Actual operating expenses for the year ended
December 31, 2004 was .38% of average net assets. As reimbursement of
allocated expenses, operating expenses paid to The Central Bank for the
year ended December 31, 2004 was $63,300. The Fund accrued or received from
the Bank Investment Fund-Liquidity Fund for the year ended December 31,
2004 the amount of $173,900.
BANK INVESTMENT FUND LIQUIDITY FUND
(Series 2)
FINANCIAL STATEMENTS
For the year ended December 31, 2004
18
BANK INVESTMENT FUND-LIQUIDITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<s> <c>
ASSETS:
INVESTMENTS, at cost which approximates value $ 35,886,811
REPURCHASE AGREEMENTS 118,650,000
INTEREST RECEIVABLE 290,639
OTHER ASSETS 10,447
CASH 474,896
------------
TOTAL ASSETS 155,312,793
------------
LIABILITIES:
DIVIDENDS PAYABLE 54,166
ACCRUED EXPENSES 72,036
------------
TOTAL LIABILITIES 126,202
------------
NET ASSETS: (Equivalent to $1,000 per share based on 155,186.5910 shares of
beneficial interest outstanding) $155,186,591
============
REPRESENTED BY:
Paid-in Capital $155,186,591
Undistributed net investment income 181,035
Accumulated net realized losses on investments (181,035)
------------
TOTAL NET ASSETS $155,186,591
============
See notes to financial statements.
19
BANK INVESTMENT FUND-LIQUIDITY FUND
STATEMENT OF OPERATIONS
Year Ended December 31, 2004
<s> <c> <c>
INVESTMENT INCOME: $3,763,179
EXPENSES:
Compensation, payroll taxes and benefits-officers $ 87,197
Compensation, payroll taxes and benefits-other 98,329
Occupancy 100,019
Other bank fees 61,453
Professional fees 39,977
Distribution expenses 33,559
Equipment and data processing 31,941
Directors' fees 21,000
Insurance expense 19,116
Postage and telephone 13,488
Meetings and travel 12,361
Shareholder reports 5,065
Stationary and supplies 4,156
Federal income tax 54,554
Federal income tax reduction (53,854)
Other expenses (22,466)
--------
TOTAL EXPENSES 505,895
----------
INVESTMENT INCOME-NET 3,257,284
----------
REALIZED NET LOSS ON INVESTMENT SECURITIES
SOLD (181,035)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,076,249
==========
See notes to financial statements.
20
BANK INVESTMENT FUND-LIQUIDITY FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
-------------------------------
2004 2003
---- ----
<s> <c> <c>
INCREASE IN NET ASSETS FROM OPERATIONS:
Investment income-net $ 3,257,284 $ 7,491,592
Realized net loss on investment securities sold (181,035) -
------------- -------------
NET INCREASE IN NET ASSETS RESULTING IN
OPERATIONS: 3,076,249 7,491,592
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net (3,076,249) (7,491,592)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST-
NET DECREASE (246,006,495) (407,689,880)
------------- -------------
TOTAL DECREASE IN NET ASSETS (246,006,495) (407,689,880)
NET ASSETS:
Beginning of year 401,193,086 808,882,966
------------- -------------
End of year $ 155,186,591 $ 401,193,086
============= =============
See notes to financial statements.
21
BANK INVESTMENT FUND-LIQUIDITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 2004
Obligations of Federal Agencies-1.6%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
Federal Home Loan Bank $ 2,500,000 4.125% 01/14/05 $ 2,502,100
----------- ------------
(Value $ 2,514,063)
Certificates of Deposit-2.7%
Bank of Fall River,
a Cooperative Bank $ 500,000 2.25% 01/10/05 $ 500,000
Fidelity Cooperative Bank 500,000 2.25 01/19/05 500,000
Lowell Cooperative Bank 200,000 1.98 03/23/05 200,000
Mt. Washington Cooperative Bank 450,000 2.25 01/04/05 450,000
Mt. Washington Cooperative Bank 300,000 2.25 02/22/05 300,000
Mt. Washington Cooperative Bank 600,000 2.50 04/04/05 600,000
NCB, FSB 1,500,000 2.25 01/18/05 1,500,000
NCB, FSB 100,000 1.90 04/04/05 100,000
----------- ------------
$ 4,150,000 (Value $ 4,150,000) $ 4,150,000
----------- ------------
Commercial Paper-3.2%
Merrill Lynch & Co., Inc. $ 5,000,000 2.28%* 01/24/05 $ 4,992,400
----------- ------------
(Value $ 4,992,400)
Short-Term Corporate Bonds and Notes-4.5%
Associates Corp. of N.A. $ 7,000,000 7.75% 02/15/05 $ 7,056,217
----------- ------------
(Value $ 7,038,934)
<FN>
- --------------------
* Annualized yield on date of purchase.
</FN>
See notes to financial statements.
22
BANK INVESTMENT FUND-LIQUIDITY FUND
PORTFOLIO OF INVESTMENTS (continued)
December 31, 2004
Federal Funds Sold-7.9%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
Bank of America, N.A. $ 6,141,418 2.21% 01/03/05 $ 6,141,418
Eastern Bank, N.A. 6,044,676 2.25 01/03/05 6,044,676
----------- ------------
$12,186,094 (Value $ 12,186,094) $ 12,186,094
=========== ============
Money Market Deposits-3.2%
NCB, FSB $ 5,000,000 2.00% 01/03/05 $ 5,000,000
----------- ------------
(Value $ 5,000,000)
(Value $ 35,881,491) $ 35,886,811
------------
Repurchase Agreement-76.5%
$118,650,000 Repurchase Agreement dated December 31, 2004 with Morgan
Stanley Dean Witter, Inc. due January 3, 2005 with respect to
various U.S. Governments ranging from:
Par Value $1,000-$51,615,000-Totaling $257,448,614
Rate Range 1.80%-15.00%
Maturity Range 01/05/2005-12/01/2034
Maturity value of $118,671,258 for an effective yield of 2.15%.
(Value $118,650,000) $118,650,000
------------
Total Investments-99.6% (Value $154,531,491) $154,536,811
------------
Other assets in excess of liabilities-0.4% 649,780
------------
Net assets-100.0% $155,186,591
============
See notes to financial statements.
23
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Organization:
The Bank Investment Fund (the "Corporation") was organized effective
April 7, 1985 pursuant to a Special Act of the Commonwealth of
Massachusetts (Acts of 1984, Chapter 482, as amended,) under the chartered
name "Co-operative Bank Investment Fund" and does business under the name
"Bank Investment Fund." The Corporation is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
Corporation invests and manages two mutual funds derived from the voluntary
subscriptions made by eligible banks.
Liquidity Fund (the "Fund") is a no-load, diversified, open-end money
market fund, which commenced operations on October 12, 1988. Fund shares
are currently offered to the following eligible investors: Massachusetts
Co-operative Banks, Massachusetts Savings Banks, Massachusetts Trust
Companies, Federally Chartered Savings Banks and Savings and Loan
Associations with their principal place of business in Massachusetts, The
Co-operative Central Bank Reserve Fund, The Savings Bank Life Insurance
Company of Massachusetts and the National Cooperative Bank.
Because more than one fund will be operated by the Corporation,
operating expenses related directly to a single fund operation will be
charged directly to that fund. Common or indirect expenses will be
allocated among funds in proportion to the ratio of the net assets of each
fund to total net assets of the Corporation or on such other basis as the
Board of Directors of the Corporation may determine from time to time to be
fair and equitable.
NOTE 2. Significant Accounting Policies:
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of
management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Accounting for investments:
Security transactions are accounted for on the trade date (date the
order to buy or sell is executed). The Fund's investment securities are
carried at their amortized cost, which does not take into account
unrealized appreciation or depreciation. Interest income is accrued on all
debt securities on a daily basis and includes accretion of original issue
discount. Premiums, if any, and discounts are amortized or accreted on a
straight line basis, which approximates the income method.
24
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
Repurchase agreements:
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying investments to ensure the existence of a proper level of
collateral.
Federal income taxes:
The Corporation's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is generally required.
In 2004, the Fund incurred a federal income tax liability of $53,854
on $181,035 of undistributed income resulting from the non deductibility of
$181,035 in security losses on portfolio repositioning. The resulting loss
carry forward of $181,035 will expire on December 31, 2012. A corporate
officer voluntarily contributed $53,854 to the Fund in order for the Fund
to pay this federal income tax expense without either reducing the per
share distribution for December 2004 or reducing the per share net asset
value below $1,000.
Dividends to shareholders:
The Fund distributes all of its net investment income on a daily
basis. Dividends are declared on each day that the Fund is open for
business. Investors receive dividends in additional shares unless they
elect to receive cash. Payment is made in additional shares at the net
asset value on the payable date or in cash, on a monthly basis.
Distributions of realized net capital gains, if any, are declared and paid
once each year and are reinvested in additional shares at net asset value
or, at each shareholder's option, paid in cash.
The short-term capital losses recorded in connection with the
portfolio repositioning in November 2004 resulted in undistributed taxable
income of $181,035.
25
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Net asset value:
The net asset value per share is determined daily by dividing the
value of all investment securities and all other assets, less liabilities,
by the number of shares outstanding. The Fund has established procedures
reasonably designed to stabilize the net asset value per share at $1,000.
NOTE 3. Shares of Beneficial Interest:
Chapter 482 of the Acts of 1984, as amended by Chapter 244, Acts of
1986, of the Commonwealth of Massachusetts permits the directors to issue
an unlimited number of full and fractional shares of beneficial interest
(no par, non-voting, with a stated value of $1,000 per share).
Transactions in shares of beneficial interest are summarized as
follows:
Year Ended Year Ended
December 31, 2004 December 31, 2003
-------------------------------- --------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<s> <c> <c> <c> <c>
Sold 1,355,157.9629 $1,355,157,963 2,875,965.4073 $2,875,965,407
Issued in reinvestment
of dividends 2,087.7331 2,087,733 4,827.0807 4,827,081
-------------- -------------- -------------- --------------
1,357,245.6960 1,357,245,696 2,880,792.4880 2,880,792,488
Redeemed 1,603,252.1914 1,603,252,191 3,288,482.3685 3,288,482,368
-------------- -------------- -------------- --------------
Net decrease (246,006.4954) $ (246,006,495) (407,689.8805) $ (407,689,880)
============== ============== ============== ==============
NOTE 4. Distribution Expenses:
The Fund has adopted a Plan of Distribution (the "Plan"), pursuant to
rule 12b-1 under the Investment Company Act of 1940, to use the assets of
the Fund to finance certain activities relating to the distribution of its
shares to investors. The Plan authorizes the Fund to pay for the cost of
preparing, printing, and distributing offering circulars to prospective
investors, for certain other direct or indirect marketing expenses, direct
payments to sales personnel, and for the cost of implementing and operating
the Plan. Plan expenses may not exceed an amount computed at an annual rate
of .12 of 1% of the Fund's average daily net assets. The Fund paid or
accrued $33,559 (.01% of average net assets) pursuant to this Plan for the
year ended December 31, 2004.
26
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5. Pension Plans:
The Fund is a participating employer in the Co-operative Banks
Employees Retirement Association, and has, in effect, a Defined
Contribution Plan covering all eligible officers and employees. Under the
plan, contributions by employees are doubled by the Fund, up to a maximum
of 10% of each employee's salary. Effective January 1, 1989, the Fund also
participates in a Defined Benefit Plan, which covers all eligible
employees, and is funded currently. The Fund's contributions to these
multi-employer plans for the year ended December 31, 2004 was $32,033.
NOTE 6. Transactions With Related Parties:
The Incorporators of the Corporation are the Directors of The Co-
operative Central Bank, which is the statutory reserve bank and insurer of
deposits in excess of Federal deposits insurance limitations for
Massachusetts co-operative banks. The Board of Directors of the Corporation
is elected by the Incorporators.
The Fund accrued or paid the Bank Investment Fund-Fund One $173,900
for the year ended December 31, 2004 as a net reimbursement for the
proportionate share of expense items used in common by both funds. All fees
and expenses for the Fund are estimated and accrued daily. Actual operating
expenses for the year ended December 31, 2004 were .17% of average net
assets.
In 2004, the Fund incurred a federal income tax liability of $53,854
on $181,035 of undistributed income resulting from the non deductibility of
$181,035 in security losses on portfolio repositioning. A corporate officer
voluntarily contributed $53,854 to the Fund in order for the Fund to pay
this federal income tax expense without either reducing the per share
distribution for December 2004 or reducing the per share net asset value
below $1,000.
Exhibit 16
BANK INVESTMENT FUND
Yield worksheet
FUND ONE DATE 12/31/2004
30 Days Ended
Yield = 2[( a - b 6
____ + 1) -1]
[( cd )
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
a = 126,924.83 b = 13,800.00
c = 53,173.5069 d = 979.1735
a - b = 113,124.83
cd = 52,066,088.86
Yield in accordance with the above formula is 2.62%.
BANK INVESTMENT FUND
Total Return Worksheet
FUND ONE DATE 1 year
Ended 12/31/2004
n 1
Total Return: P(l + T) = ERV or [(ERV) /n}
------- -1
[(P ) }
p = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year periods to the end of the 1, 5, or 10 year
periods (or fractional portion thereof).
P = 1,000.00 T = .71%
n = 1 ERV = 1,007.0702
Total return in accordance with the above formula is .71%.
BANK INVESTMENT FUND
Total Return Worksheet
FUND ONE DATE 5 years
Ended 12/31/2004
n 1
Total Return: P(l + T) = ERV or [( ERV) /n}
-------- -1
(P ) }
p = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year periods to the end of the 1, 5, or 10 year
periods (or fractional portion thereof).
P = 1,000.00 T = 4.35%
n = 5 years ERV = 1,237.4670
Total return in accordance with the above formula is 4.35%.
BANK INVESTMENT FUND
Total Return Worksheet
FUND ONE DATE 10 years
Ended 12/31/2004
n 1
Total Return: P(l + T) ERV or [( ERV ) /n}
----- -1
[( P ) }
p = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10
year periods to the end of the 1, 5, or 10 year
periods (or fractional portion thereof).
P = 1,000.00 T = 5.41%
n = 10 years ERV = 1,694.0766
Total return in accordance with the above formula is 5.41%.
BANK INVESTMENT FUND
Yield worksheet
LIQUIDITY FUND DATE 12/31/2004
7 Days Ended
Yield = c * 365
----
7
c = a
----
b
a net investment income (per share) or net change
b beginning value = 1,000.00
c base period return = net investment income
---------------------
beginning value
a = 0.3571 b= 1,000.00
c = .0003571
Yield in accordance with the above formula is 1.86%.
Exhibit 19
BANK INVESTMENT FUND
FUND ONE (Series 1)
PRICE MAKE UP SHEET
Date: 12/31/2004
Net Asset Value - January 1 $ 89,934,961
Cash Invested:
YTD-Yesterday $16,966,217
INV-Today -0- 16,966,217
Dividends Reinvested:
YTD-Yesterday 604,631
DR-Today 45,036 649,667
Cash Redeemed:
YTD-Yesterday ( 57,028,269)
RED-Today -0- ( 57,028,269)
Realized Gains (Losses):
YTD-Yesterday (131,193)
G/L-Today -0- (131,193)
Unrealized (Depreciation):
YTD-Yesterday (823,733)
Appreciation/
(Depreciation) Today -0- (823,733)
TOTAL NET ASSETS - TODAY $49,567,650
PRE-NET ASSET VALUE COMPUTATION:
Total Net Assets - Yesterday
(Adjusted - see below) $49,501,985
Today's Appreciation/
Depreciation in Inv. Sec.* 0
Number of Shares Outstanding-
Yesterday (Adjusted - see below) 50,575.9314
Pre-NAV per share $978.7657
POST-NET ASSET VALUE COMPUTATION:
Total Net Assets - Today $49,567,650
Shares Outstanding:
Today 50,575.9337
Current
Redemptions - 0 -
Current
Investments (Dividend Reinvestment) 45.9943
Number of
shares out-
standing today 50,621.9280
NET ASSET VALUE PER SHARE $979.1735
*INVESTMENT SECURITIES PORTFOLIO
Yesterday Today
Market $49,243,898 $49,243,898
Cost 49,909,517 49,909,517
Appreciation/
Depreciation $ -0- $ -0-
TODAY'S CHANGE $ -0- $ -0-
BANK INVESTMENT FUND
Liquidity Fund (Series 2)
PRICE MAKE UP SHEET
Date: 12/31/2004
Net Asset Value - January 1 $401,193,086
Cash Invested:
YTD-Yesterday $1,336,242,289
INV-Today 18,915,674 1,355,157,963
Dividends Reinvested:
YTD-Yesterday $ 1,916,840
DR-Today 170,893 $ 2,087,733
Cash Redeemed:
YTD-Yesterday ($1,603,252,191)
RED-Today -0- ($1,603,252,191)
Realized Gains (Losses):
YTD-Yesterday (181,035)
G/L-Today -0- (181,035)
Undistributed Net Investment
Income:
YTD-Yesterday 181,035
YTD-Today -0- 181,035
TOTAL NET ASSETS - TODAY $155,186,591
PRE-NET ASSET VALUE COMPUTATION:
Total Net Assets - Yesterday $136,100,023
Today's Appreciation/
Depreciation in Inv. Sec. 0
Number of Shares Outstanding-
Yesterday 136,100.0231
Pre-NAV per share $1,000.0000
POST-NET ASSET VALUE COMPUTATION:
Total Net Assets - Today $155,186,591
Shares Outstanding:
Today 155,186.5910
Current
Redemptions - 0 -
Current
Investments (Dividend Reinvestment) 170.8934
Number of
shares out-standing today 155,186.5910
NET ASSET VALUE PER SHARE $1,000.0000
INVESTMENT SECURITIES PORTFOLIO*
Yesterday Today
Market $ $
Cost
Appreciation/
Depreciation $ $
TODAY'S CHANGE
This Section is Not Applicable - Amortized Cost Method used.
66
BANK INVESTMENT FUND FUND ONE
(Series 1)
ANNUAL REPORT
December 31, 2004
OFFERING CIRCULAR
- -----------------
[LOGO] Bank Investment Fund
Fund One
75 Park Plaza
Boston, Massachusetts 02116-3934
617-695-0415
--------------------
The Bank Investment Fund (the "Corporation") is an investment company
which currently invests and manages two mutual funds derived from voluntary
subscriptions made by eligible investors.
Fund One (the "Fund") is a no-load, diversified, open-end investment
fund whose objective is maximum current income consistent with liquidity
and the maintenance of a portfolio of high quality investments in short and
intermediate term marketable securities issued by the United States
Government and its agencies, repurchase agreements and certain money market
instruments. The Fund is designed solely for use by eligible investors as
an economical and convenient way to make liquid investments. Fund shares
are currently offered to the following eligible investors: Massachusetts
Co-operative Banks, Massachusetts Savings Banks, Massachusetts Trust
Companies, Federally Chartered Savings Banks and Savings and Loan
Associations with their principal place of business in Massachusetts, The
Co-operative Central Bank Reserve Fund, The Savings Bank Life Insurance
Company of Massachusetts, the National Cooperative Bank, and directly or
indirectly wholly-owned subsidiaries of such institutions (sometimes
hereinafter called "Banks").
Investors should read this Offering Circular and retain it for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCU-
RACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSIONER OF BANKS OF THE COMMONWEALTH OF MASSACHUSETTS (the
"Commissioner of Banks"), NOR HAS THE COMMISSIONER OF BANKS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED OR GUARANTEED. SUCH SHARES ARE BEING OFFERED PURSUANT TO AN
EXEMPTION FROM THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
ACTS AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER SUCH ACTS.
--------------------
The date of this Offering Circular is February 28, 2005
TABLE OF CONTENTS
Page
----
Risk Return Summary 1
Investment Objectives 1
Principal Investment Strategies 1
Principal Investment Risk 1
Bar Chart and Performance Table 2
Management Discussion 4
Fee Table 4
Investment Objectives and Restrictions 5
Statutory Limitation on Investments 6
Dividends and Capital Gains 7
Net Asset Value 7
Investors' Accounts 7
Investors' Privacy 7
Taxes 7
Auditors and Legal 8
Yield 8
How Shares of Fund are Purchased 8
How Shares of Fund are Redeemed 9
Transfer Restrictions 10
Organization 10
Description of Fund Shares 11
Supervision and Regulation 11
Investment Advisor 12
Transfer Agent 12
Operating and Distribution Expenses 12
Exchange Privilege 13
Custodian 13
Management of the Fund 14
Financial Highlights 18
Independent Auditor's Report 20
Financial Statements 21
Investments 24
Notes to Financial Statements 26
Account Application Forms 30
Additional Information Back Cover
BANK INVESTMENT FUND
FUND ONE
75 Park Plaza
Boston, Massachusetts 02116-3934
RISK RETURN SUMMARY
Investment Objectives
The investment objective of Fund One is to maximize current income
consistent with liquidity of assets and safety of principal.
The Fund was formed to provide participating banks with a highly
liquid, diversified, high-quality investment vehicle designed to assist
liquidity management.
Principal Investment Strategies
In addition to maintaining cash on hand and in checking accounts due
from banks, the Fund invests principally in short and intermediate term
marketable debt securities issued by the United States Government or by
agencies of the United States, repurchase agreements, reverse repurchase
agreements and money market instruments.
The categories of those securities include, but may not be limited to
a) certificates of deposit due from any trust company, national banking
association or banking company, b) bonds and other direct obligations of
the United States or such obligations as are unconditionally guaranteed as
to principal and interest by the United States, c) federal agency
obligations which have unexpired terms of five years or less, d) repurchase
agreements, and e) certain common money market instruments.
The Fund may enter into reverse repurchase agreements to meet short-
term liquidity needs of the Fund. These agreements may not be in excess of
three business days.
Principal Investment Risk
The main risk factor in the Fund's performance is interest rates. The
yield and share price of the Fund change daily based on changes in interest
rates and market conditions, and in response to other economic, political
or financial events. The Fund's total return includes both income and price
gains or losses. While income is the most important component of returns
over time, the Fund's emphasis on income does not mean the Fund invests
only in the highest-yielding bonds and notes available, or that it can
avoid losses of principal. In general, bond and note prices rise when
interest rates fall and fall when interest rates rise. Longer-term bonds
and notes are usually more sensitive to interest rate changes. In other
words, the longer the maturity of a bond or note, the greater the impact a
change in interest rates is likely to have on the price.
Debt securities are also subject to credit risk. Credit risk is the
risk that the issuer of a debt security might not make interest and
principal payments on the security as they become due. Securities directly
issued by the U.S.
1
Treasury and certain U.S. government agencies that are backed by the full
faith and credit of the U.S. government have little credit risk. Securities
issued by other agencies of the U.S. government generally have low credit
risks.
An additional risk factor in the Fund's performance is pre-payment
risk. Many types of debt securities, including mortgage backed securities
and callable bonds and notes may be subject to a prepayment risk.
Prepayment risk occurs when the issuer of a security can prepay principal
prior to the security's maturity. Securities subject to prepayment risk
generally offer less potential for gains during a declining interest rate
environment, and similar or greater potential for loss in a rising interest
rate environment. The risk of lower interest rates on reinvestments of
prepayment amounts will also result.
These risk factors may adversely effect the Fund's net asset value,
yield, total return and loss of money in an investment in the Fund may
result.
Bar Chart and Performance Table
The bar chart shows the changes of the Fund's total return
performance from year to year over a ten year period ended December 31,
2004.
An investor bank may judge the Fund's portfolio performance by
comparing it to that of similar mutual funds or to market indices.
Performance may also be gauged by the total return of the portfolio over
time.
BANK INVESTMENT FUND-FUND ONE
ANNUAL TOTAL RETURN
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Percent 12.78 4.10 7.12 6.32 2.40 8.59 6.91 4.20 1.58 0.71
<FN>
- --------------------
During the ten-year period shown in the bar chart, the highest quarterly
return was 18.1% (for the quarter ended June 30, 1995) and the lowest
quarterly return was - 4.7% (for the quarter ended June 30, 2004).
</FN>
2
The table shows how the Fund's average annual return for one, five
and ten years for the periods ended December 31, 2004 compares to the
Merrill Lynch Government/Agency 1-3 year index; a widely recognized, index
of fixed income securities. The index is representative of the securities
in which the Fund invests.
One Five Ten
Year Year Year
---- ---- ----
<s> <c> <c> <c>
Bank Investment Fund - Fund One .71% 4.35% 5.41%
Merrill Lynch Government/Agency
1-3 year index .99% 5.04% 5.78%
<FN>
- --------------------
Total returns are based on past results and are not a prediction of future
performance.
</FN>
BANK INVESTMENT FUND-FUND ONE
Investment Comparison-Initial Inv. $10,000.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Merrill Lynch 1-3 10,000 11,099 11,656 12,432 13,300 13,715 14,830 16,076 17,023 17,363 17,535
Yr. Gov't Index
Fund One 10,000 11,278 11,740 12,576 13,371 13,692 14,869 15,897 16,564 16,826 16,945
<FN>
- --------------------
The line graph assumes an initial investment of $10,000, in Fund One and
the Merrill Lynch Government/Agency 1-3 year index at the beginning of the
first year. The line graph compares this initial and subsequent account
values at the end of the most recently completed ten years.
</FN>
3
Management Discussion
Fund One reported a total return of .71% for the year ended December
31, 2004. During the same period, the Merrill Lynch Government Agency 1-3
year index, which consists of government and Agency securities of
comparable maturities to the majority of the portfolio, has a total return
of .99%. Fund One's total return of 1.58% for the year ended December 31,
2003 was also slightly lower than the Merrill Lynch Government Agency 1-3
year index which had a total of 2.00%. Our portfolio strategy in 2003 and
2004 to primarily limit investments to callable securities with one-time
call protection, with maturities not exceeding June 2007 had caused some
lower yields and returns to be realized in both of these periods. Security
maturities and sales proceeds were used to meet redemption order for
liquidity purposes, and reinvestment on higher yielding securities was not
realized to the extent expected in 2004.
Since the end of June, 2004 the Federal Open Market Committee (FOMC)
of The Federal Reserve Bank has increased the target rate for Federal Funds
five times for a total of 125 basis points. The Federal Funds target rate,
which remained at 1% from June 2003 to June 2004, was 2.25% at December 31,
2004. The primary credit rate has also been set at 100 basis points above
the target Federal Funds rate, and increased from 2.00% to 3.25% in the
later period of 2004.
Fund One's portfolio turnover rate was 28.1% for 2004 compared to its
portfolio turnover ratio of 102.2% for 2003. The short-term interest rates
in 2001 through 2003 resulted in securities in the portfolio being called
at an accelerated rate, and resulted in larger than normal turnover ratio
in these years. Called security activity was greatly reduced in 2004 due to
both the anticipation of and actual short-term interest rate increases that
occurred as discussed above.
In January 2005, we shortened the Fund One portfolio by selling many
of the longer dated securities and reinvesting the proceeds in maturities
of six months or less. We believe this defensive posture will protect asset
value and be more responsive to further increases in short-term interest
rates.
Fee Table
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
Year Ended
December 31, 2004
-----------------
<s> <c> <c>
Shareholder Transaction Expenses* 0%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0%
12b-1 Fees .03%
Other Expenses
Compensation, Payroll, Taxes, & Benefits .15%
Occupancy .07%
Remainder .13%
---
.35%
---
TOTAL FUND OPERATING EXPENSES .38%
===
<FN>
* The Fund charges no sales load or deferred sales load on any
purchase, reinvested dividend, exchange, or redemption transactions.
</FN>
4
Example
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% annual return and (2) with or without redemption at the end
of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<s> <c> <c> <c> <c>
December 31, 2004 $38.88 $122.72 $215.35 $491.73
The purpose of the foregoing table, which is based upon the Fund's
fiscal year ended December 31, 2004, is to assist you in understanding the
various costs and expenses that an investor in the Fund will bear directly
or indirectly. The Example provided is intended to show the dollar amount
of expenses that would be incurred over the indicated periods on a
hypothetical $10,000 investment in the Fund, assuming a 5% annual return
and assuming that the Fund's expenses continue at the rates shown in the
table. However, the actual return on an investment in the Fund may be
greater or less than 5%. Furthermore, the Example should not be considered
a representation of past or future expenses; actual expenses may be greater
or less than those shown.
INVESTMENT OBJECTIVES AND RESTRICTIONS
The investment objective of the Fund is to achieve as high a level of
current income as is consistent with safety of principal.
The Fund was formed to provide participating banks with a highly
liquid, diversified, high-quality in-vestment vehicle designed to assist
liquidity management. By pooling the money of its investors, it is able to
offer the economies of size and diversification of maturities normally
available to large corporate and institutional investors.
Shares of the Bank Investment Fund are eligible investments to be
included in legal liquidity under Massachusetts General Laws, Chapter 170,
Section 22.
The Board of Directors of the Corporation has investment discretion
with regard to Fund One assets.
The Corporation is authorized by statute to invest its assets in a
variety of debt and equity securities. No more than 5% of the Corporation's
assets, at the time of purchase, may be invested in the securities of any
one issuer except for direct obligations of the United States or
obligations guaranteed by the United States, and other obligations issued
under certain Federal programs or by certain federal agencies or
instrumentalities.
The Fund is further restricted through the investment policy
maintained by the Corporation's Officers and Directors. The investment
policy for the Fund restricts the Corporation from a) making any investment
in equity securities for the Fund, b) making any intermediate or long-term
investment in corporate (non-governmental) debt securities for the Fund and
c) investing more than 25% of the Fund's total assets in the securities of
a particular industry other than U.S. Government or Federal agency
securities.
5
STATUTORY LIMITATION ON INVESTMENTS IN THE FUND
BY PARTICIPATING BANKS
Under Massachusetts General Laws, Chapter 167F, Section 3(2) as
amended, a participating or eligible savings bank or co-operative bank may
invest an amount in excess of 100% of its capital and surplus in any
distinct non-equity investment fund of the Corporation except to the extent
that the Commissioner of Banks for the Commonwealth of Massachusetts may by
regulation set limits and conditions. The participating bank will be
responsible for monitoring and compliance with this limitation.
Under Massachusetts General Laws, Acts of 1932, Chapter 45, Section
7, as amended, The Co-operative Central Bank Reserve Fund may not invest or
hold at any one time more than 20% of its assets with the Corporation.
Investments in the Fund are affected by Section 303 of the FDIC
Improvement Act of 1991 which limits investments by FDIC-insured state
banks (including Massachusetts co-operative banks, savings banks and trust
companies) in common or preferred stock or shares of mutual funds to the
extent that such investments are permissible for national banks.
Permissible national bank investments, as described in section 24(7) of the
National Bank Act and 12 C.F.R. Part 1, include mutual funds which invest
in securities and financial investments eligible for direct investment by
national banks. Because the underlying investment portfolio composition of
Fund One is comprised of U.S. Government and Federal Agency Securities,
Fund One balances may be excluded (on a pass through basis with shares of
beneficial interest) from an FDIC-insured state-chartered bank's
computation of equity securities in measuring compliance with 12 C.F.R.
Part 362 limits (usually 100% of Tier 1 capital).
Federally chartered savings banks and savings and loan associations
(with their principal place of business in Massachusetts) may invest in an
open-end mutual fund, such as Fund One, which invests in securities and
financial instruments in which such institutions may invest directly. For
purposes of determining compliance with quantitative investment limitations
under the Home Owners Loan Act ("HOLA"), an investing bank's or
association's proportionate share of a mutual fund's individual investments
will, under 12 C.F.R., [SECTION]560.32, be aggregated with such investments
held directly. (The investments held by Fund One may also be held without
limitation by federally chartered savings banks and savings and loan
associations.) Apart from compliance with applicable investment
limitations, a bank or association may invest, without prior notice to the
Office of Thrift Supervision, an amount up to 15% of its total capital in
any one mutual fund, or up to 50% of total capital in all such pass-through
investment vehicles. Investments in excess of the 15% and 50% limits may
only be made when thirty days' advance notice has been provided to the
Office of Thrift Supervision.
Certain federally chartered savings banks who converted from a
Massachusetts savings bank charter may, under certain grandfather
provisions of HOLA, retain broader investment authority than that described
in the preceding paragraph. For example, section 5(i) of HOLA grandfathers
state authorized investment powers of certain Federal savings banks in
existence as of the date of enactment of Federal statutes (e.g., the
Financial Institution Reform, Recovery, and Enforcement Act of 1989) which
may have otherwise limited such investments.
6
DIVIDENDS AND CAPITAL GAINS
The Fund distributes all of its net income on a daily basis.
Dividends are declared on each day that the Fund is open for business.
Investors receive dividends in additional shares unless they elect to
receive cash. Payment is made in additional shares at the net asset value
on the payable date or in cash, on a monthly basis.
Investors wishing to change the method of receiving dividends must
notify the Fund in writing at least one week before payment is to be made.
Net income of the Fund consists of all interest income accrued and
earned, less estimated expenses of the Fund. Distributions of realized net
capital gains, if any, are declared and paid once each year and are
reinvested in additional shares at net asset value or, at each
shareholder's option, paid in cash.
NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
the New York Stock Exchange. The net asset value per share is determined by
adding the appraised value of all securities and all other assets,
deducting liabilities and dividing by the number of shares outstanding.
U.S. debt securities are normally valued on the basis of valuations
provided by market makers. Such prices are believed to reflect the fair
value of such securities and to take into account appropriate factors such
as institutional size trading in similar groups of securities, yield
quality, coupon rate, maturity, type of issue, and other market data.
Securities for which market quotations are not readily available will be
valued at fair value using methods determined in good faith by or at the
direction of the Board of Directors.
INVESTORS' ACCOUNTS
The Fund maintains an account for each investor in full and
fractional shares. All purchase and sale transactions are confirmed to the
investor. Statements of account showing all transactions for the month,
including dividends paid, are sent to participating banks on a monthly
basis. In addition, statements of account showing all transactions for the
calendar year, including dividends paid, are sent to participating banks on
an annual basis.
INVESTORS' PRIVACY
Protecting the privacy and confidentiality of investor's account
information is important to the Fund. We value your business and the trust
you placed with us. The Fund does not share any non-public information
concerning our investor banks with any other party; except as necessary, to
process transactions or service accounts. In addition, we maintain physical
and electronic control procedures to safeguard our business records
relative to investor accounts.
TAXES
The Fund has qualified as a regulated investment company under the
Internal Revenue Code and will not be liable for federal income taxes to
the extent its earnings are distributed. Dividends derived from interest,
together
7
with distributions of any short-term capital gains, are taxable as ordinary
income, whether or not reinvested. Dividends of the Fund do not qualify for
the dividends received exclusion for corporations.
Distributions of net long-term capital gains, if any, realized by the
Fund are made at least annually and are taxable to shareholders. In
addition, an investing Bank may realize a capital gain or loss in any year
in which it redeems shares. It should be noted that long-term capital gain
distributions and/or capital gains or losses realized from redemptions are
taxed at the same rates as ordinary income under the provisions of the Tax
Reform Act of 1986.
A statement setting forth the federal income tax status of all
distributions made during each calendar year is sent to each shareholder
promptly after the end of such year.
AUDITORS AND LEGAL
Parent, McLaughlin and Nangle, Certified Public Accountants, Inc.,
are the auditors of the Fund. The law firm of Steptoe and Johnson has
passed upon certain legal matters of the Fund in connection with the shares
offered by this offering circular.
YIELD
The yield for the 30-day period ended December 31, 2004 was 2.62%.
Yield is calculated based on the 30 days ending on the date of the most
recent statement of Assets and Liabilities, (as presented elsewhere
within). A standard formula as required by the Securities and Exchange
Commission is utilized for the computation of this yield amount. Net
Investment Income in the formula differs from actual Net Investment Income
as included in the Statement of Operations (included elsewhere within). Net
Investment Income as reflected in the formula includes yield based upon
market valuation of the portfolio at the commencement of the 30 day period.
This yield amount may differ from the ratio of Net Investment Income to
Average Net Assets reflected in selected financial information (as
presented elsewhere within). The Fund yield fluctuates as a result of
numerous factors. Therefore, the yield stated here is not necessarily
representative of the Fund's future yield. The 30 day yield, for the most
recent calender month end, may be obtained by directly calling the Rate
Line 617-695-0419 or by calling our main office telephone number 617-695-
0415 collect.
HOW THE SHARES OF THE FUND ARE PURCHASED-
TELEPHONE INVESTMENT PROCEDURE
Shares of the Fund are offered for sale on days on which the New York
Stock Exchange is open for business. The Fund and its custodian bank
observe the following holidays during the calendar year: New Year's Day,
Martin Luther King Day, President's Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
There is no sales charge. The minimum initial investment is $50,000.00.
Additional investments may be made in any amount in excess of the minimum.
8
Bank Wire Transfers
Call your correspondent bank and speak to your account officer. Tell
him that you want to transfer funds to State Street Bank and Trust Company.
Instruct him to wire transfer the money before 4:00 P.M., Eastern Standard
Time, to:
State Street Bank and Trust Company
Boston, Massachusetts
Routing number: 0110-0002-8
For account of the Bank Investment Fund, Fund One
Account number: 9006-930-3
Internal Money Transfers
If your correspondent bank account is with the State Street Bank and
Trust Company, contact your account officer and instruct him to transfer
funds from your account to the account of the Bank Investment Fund, Fund
One, Account number: 9006-930-3.
AFTER INSTRUCTING YOUR BANK TO TRANSFER FUNDS, PLEASE CALL THE FUND
AND TELL US THE AMOUNT YOU TRANSFERRED AND THE NAME OF THE BANK SENDING THE
TRANSFER. YOUR BANK MAY CHARGE A FEE FOR SUCH SERVICES. REMEMBER, IT IS
IMPORTANT TO DO THIS BEFORE 4:00 P.M. EASTERN STANDARD TIME.
The securities market, in which the Fund buys and sells securities,
usually requires immediate settlement in Federal funds for all security
transactions; therefore, payment for the purchase of Fund shares must be
made by Federal funds or bank wire, which can be converted immediately into
Federal funds. Orders received prior to 4:00 P.M., Eastern Standard Time,
will be invested in shares of the Fund at the next determined net asset
value.
HOW SHARES OF THE FUND ARE REDEEMED-
TELEPHONE REDEMPTION PROCEDURE
An investor may withdraw all or any portion of his investment by
redeeming shares on any day that the Fund is open for business at the next
determined net asset value. The proceeds of redemptions will be wired
directly to the investor's bank account within one business day.
The right of redemption can be suspended and the payment of the
redemption proceeds deferred during any period in which a) the New York
Stock Exchange is closed or trading on such Exchange is restricted or b)
the Securities and Exchange Commission deems an emergency to exist, or
during any other period permitted by order of the Commission for the
protection of investors.
9
Bank Wire Transfers
Call the Fund by 4:00 P.M. Eastern Standard Time to redeem shares
that day (Trade Date), for payment on the following day (Settlement Date).
When the amount to be redeemed is at least $5,000.00, the Fund will
automatically wire transfer the amount to your correspondent bank account
at settlement. The Fund will make payment by check when the amounts
redeemed are less than $5,000.00.
Internal Money Transfers
If your bank's account is with the State Street Bank and Trust
Company, contact the Fund by 4:00 P.M. Eastern Standard Time for redemption
of shares that day (Trade Date) for payment the following day (Settlement
Date). The Fund will transfer the amount from its account to your account
at State Street Bank and Trust Company at settlement.
TRANSFER RESTRICTIONS
Fund shares may not be transferred by banks holding such shares to
any persons other than an eligible bank (except that the shares may be
pledged to such other persons or they may be transferred to The Co-
operative Central Bank, hereinafter the "Central Bank"). If the Fund shares
are acquired by any other persons by operation of law or by foreclosure
upon the pledge of such shares (or through transfer, in the case of the
Central Bank), the Corporation must offer to repurchase the shares from
such person at net asset value of the shares. If such offer is refused, no
dividend may be paid by the Corporation or Fund on such shares, and the
redemption price which the holder of such shares may obtain in any
subsequent repurchase of those shares by the Corporation or Fund is limited
to the net asset value of the shares on the date of the Corporation's
offer.
In the event of any transfer, it is extremely important to notify the
Corporation immediately of any purchase, sale or transfer of Fund shares
not made through the Corporation or its transfer agent. Immediate
notification should be furnished to the Corporation by telephone, with
written notification as a follow-up thereto. Prompt notification is
essential to avoid any delay in redemption offer and loss of earnings.
Please remember that a statutory restriction exists on the Corporation and
it would be unable to pay a dividend to an ineligible holder after expiry
of the 30-day repurchase period which is statutorily available following
such transfer.
ORGANIZATION
The Corporation was organized effective April 7, 1985 pursuant to a
Special Act of the Commonwealth [Acts of 1984, Chapter 482 as amended] of
Massachusetts under its chartered name "Co-operative Bank Investment Fund"
and does business under the name "Bank Investment Fund." The Special Act
indicates that the purpose of the Corporation is to hold, invest, reinvest
and manage one or more mutual investment funds, which shall include all
property of the Corporation, to be derived from voluntary subscription
thereto by the Banks.
The Corporation is an open-end diversified management investment
company authorized to invest its assets in certain real estate mortgages,
and a variety of other investments, including direct obligations of the
United States, obligations guaranteed by the United States, obligations
guaranteed by the Federal National Mortgage Association, bonds and other
evidences of indebtedness of corporations, shares of common or preferred
stock registered on a national securities exchange or for which quotations
are available through the National Quotation Bureau, Inc.
10
or a comparable service, or through a national securities market
established in conformance with Section 11A of the Securities Act of 1934,
and other debt and equity securities. Fund One will only invest in those
securities described under "Principal Investment Strategies" and
"Investment Objectives and Restrictions" elsewhere herein.
The business of the Corporation is conducted by a Board of Directors
elected by the Corporation's Incorporators and the Directors have
investment discretion relative to Corporation assets. The Incorporators of
the Corporation are the Directors of The Co-operative Central Bank, which
is the statutory reserve bank and insurer of deposits in excess of Federal
deposit insurance limitations for Massachusetts co-operative banks.
The Corporation operates pursuant to an exemption from the sections
of the Investment Company Act of 1940 which deal with (a) voting rights of
security holders and (b) the manner of sale of redeemable shares.
Only Massachusetts Co-operative Banks, Massachusetts Savings Banks,
Massachusetts Trust Companies, Federally Chartered Savings Banks and
Savings and Loan Associations with their principal place of business in
Massachusetts, The Co-operative Central Bank Reserve Fund, The Savings Bank
Life Insurance Company of Massachusetts, The National Cooperative Bank and
directly or indirectly wholly-owned subsidiaries of such institutions are
currently offered shares in the Fund. Such investors may purchase shares of
beneficial interest, which do not entitle the shareholders thereof to
voting rights of any nature, including investment policy matters.
DESCRIPTION OF FUND SHARES
The Corporation has no capital stock. Beneficial ownership in each of
the Corporation's funds is represented by shares of beneficial ownership,
as recorded in book entry form. Each share is equal in every respect to
every other share, except that if the Directors of the Corporation
establish distinct investment funds, shares will be issued in distinct
classes and each share within each class will be equal in every respect to
every other share of that class.
The shares of beneficial ownership are no par, non-voting, with a
stated value of $1,000, issued in book entry form only. Investment and
redemption of shares is effected at the net asset value as described
elsewhere herein. Shares are recorded in whole and/or fractional shares, as
applicable. Physical certificates are not issued. Monthly statements are
furnished to reflect share balance and activity.
With regard to the absence of voting rights, management believes that
eligible investors are adequately protected because of a) regulation by the
Commissioner of Banks, b) the redeemable nature of the shares, c)
representation of co-operative bank investors in the election of Directors
of the Central Bank, who as Incorporators elect the Corporation's
Directors, and d) representation of savings bank investors by an advisor at
such corporate meetings of the Incorporators.
SUPERVISION AND REGULATION
As provided by Massachusetts statute [Chapter 482, Acts of 1984 as
amended] the Corporation is subject to the supervision of the Commissioner
of Banks of the Commonwealth of Massachusetts. Periodic reporting to the
Commissioner of Banks is also required by the same statute. The Corporation
is registered as an open-end diversi-
11
fied management investment company under the Investment Company Act of
1940, as amended, and is subject to reporting requirements thereunder.
INVESTMENT ADVISOR
The Corporation presently does not employ the services of any
investment advisory or management services company. Investment decisions
for the Fund are made by authorized officers of the Corporation, subject to
approval or ratification by its Board of Directors. The Corporation
reserves the right at any time in the future to appoint an investment
advisor at any reasonable and customary fee as may be agreed when, in the
opinion of the Corporation Directors, the use of such advisory or
management services would improve Fund performance.
TRANSFER AGENT
The Corporation maintains the records for the investment, redemption,
and/or transfer of Fund shares. The Corporation reserves its right at any
time in the future to appoint a separate transfer agent at any reasonable
and customary fee as may be agreed when, in the opinion of the Corporation
Directors, the use of such transfer service is necessary. The limited
number of shareholders and nature of Fund operation does not, at this time,
justify the use of a separate agent and would only be an extra or
unnecessary expense.
OPERATING AND DISTRIBUTION EXPENSES
Normal expenses which may be borne by the Fund include, but are not
limited to: Director fees, salaries and wages, payroll taxes, employee
benefits, taxes, corporate fees, occupancy, furniture and equipment, data
processing, legal, auditing and accounting, telephone and postage,
custodial and other bank fees, preparation, printing and distribution of
reports, insurance, membership fees, organization, and other miscellaneous
expenses.
The Corporation has adopted a plan of distribution pursuant to Rule
12b-1 of the Investment Company Act of 1940 (the "Plan") providing that the
Fund will pay certain expenses incurred by the Corporation which may be
considered to be primarily intended to result in the sale of shares in the
Fund. The expenses which may be incurred pursuant to the Plan include,
without limitation, those for the preparation, printing and distribution of
written materials for other than existing investors, preparation and
distribution of advertising material and sales literature, direct payments
to sales personnel, and other similar activities. The maximum expenditures
which may be made pursuant to the Plan in any year is .12 of 1% of the
average daily net asset value of the Corporation for such year. The Board
of Directors of the Corporation has concluded that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
Expenditures of $21,392 (.03% of average net assets) pursuant to the
12b-1 plan were incurred in and for the year ended December 31, 2004: $955
for advertising in trade journals and similar publications; $5,028 for
printing and mailing of offering circulars; $17,850 for sales related
compensation, payroll taxes and benefits; $4,907 for sponsorship of annual
subscriptions and other promotional materials; and ($7,348) for other plan
expenses.
12
Because more than one fund will be operated by the Corporation,
operating expenses and expenses incurred pursuant to the Plan related
directly to a single fund operation will be charged directly to that fund.
Common or indirect expenses will be allocated among funds in accordance
with the annual budget as determined by the Board of Directors of the
Corporation to be fair and equitable or on such other basis as the Board of
Directors of the Corporation may determine from time to time to be fair and
equitable.
The Fund reimburses the Co-operative Central Bank and receives
reimbursement from the Bank Investment Fund-Liquidity Fund for its
proportionate share of expense items used in common. All fees and expenses
for the Fund are estimated and accrued daily. Actual operating expenses for
the year ended December 31, 2004 were .38% of average net assets. As
reimbursement of allocated expenses, operating expenses paid to the Central
Bank for the year ended December 31, 2004 were $63,300. The Fund accrued or
received from the Bank Investment Fund-Liquidity Fund for the year ended
December 31, 2004 the amount of $173,900.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of another fund on the
basis of the respective net asset value of the shares involved, to the
extent that additional funds are established by the Corporation.
CUSTODIAN
The Corporation is required by statute to at all times employ a
national banking association located in the Commonwealth of Massachusetts,
or a Massachusetts state-chartered bank authorized to exercise trust
powers, as the Corporation's or Fund's custodian, to hold the securities
owned by the Corporation and any monies delivered by the Corporation's or
Fund's shareholders or due to the Corporation or Fund. Purchase and sale
transactions are effected through or by the custodian bank upon the
instructions of the Corporation.
The State Street Bank and Trust Company, 225 Franklin Street, Boston,
MA 02110 serves as custodian of the Fund's cash and investments.
13
MANAGEMENT OF THE FUND
The Incorporators of the Corporation are the Directors of The Co-
operative Central Bank which is the statutory reserve bank and insurer of
deposits in excess of Federal deposit insurance limitations for
Massachusetts co-operative banks. The Board of Directors of the Corporation
is elected by the Incorporators.
William F. Casey, Jr., President, has been the Fund's primary
investment officer since April 1, 2000. Previously, Mr. Casey held the
position of Executive Vice President of the Bank Investment Fund since its
inception in 1985. Mr. Casey is also President of the Co-operative Central
Bank and served as Financial Vice President from 1980 to 1986 and Executive
Vice President and Treasurer of the Co-operative Central Bank from 1986 to
2000. Mr. Casey is a Certified Public Accountant and had been employed in
several executive positions in both public accounting and banking prior to
1980.
The Fund is governed by a Board of Directors that meets quarterly to
review the Fund's investments, performance, expenses, and other business
affairs. The Board elects the Fund's officers. All Board members are
independent directors.
The directors and officers of the Corporation are not eligible to
hold the equity securities of the Corporation; the Corporation's charter
limits its eligible shareholders to certain Massachusetts banks and certain
other institutions. The directors are also directors and/or officers of co-
operative banks which may own beneficial interests in shares of the Fund.
Robert W. Terravecchia, Jr. was elected as a director in May 2003 by
the Board of Incorporators and appointed as an additional member of the
audit committee in June 2003 by the Board of Directors. Mr. Terravecchia is
both an attorney and certified public accountant in Massachusetts. Mr.
Terravecchia has been an officer of Weymouth Bank since 1994 and held
several positions in public accounting prior thereto. Mr. Terravecchia has
been designated as the audit committee member with financial expertise.
Directors and Officers of the Corporation, together with information
as to their principal business occupations during the past five years, are
shown below:
Number of
Portfolios Other
Term of in Fund Directorships
Office and Complex of Public
Name, Age Position(s) Held Length of Principal Occupation(s) Overseen by Companies
and Address With Fund Time Served During Past 5 Years Directors Held
----------- ---------------- ----------- ----------------------- ----------- -------------
<s> <c> <c> <c> <c> <c>
William F. Casey, Jr. President (since Yearly President of The 2 None
(60) April 1, 2000); since 1985 Co-operative Central
75 Park Plaza, Executive Vice Bank,
Boston, MA President prior Boston, Massachusetts
02116-3934 thereto (since April 1, 2000);
Executive Vice President
and Treasurer of The
Co-operative Central
Bank prior thereto
14
Number of
Portfolios Other
Term of in Fund Directorships
Office and Complex of Public
Name, Age Position(s) Held Length of Principal Occupation(s) Overseen by Companies
and Address With Fund Time Served During Past 5 Years Directors Held
----------- ---------------- ----------- ----------------------- ----------- -------------
<s> <c> <c> <c> <c> <c>
Susan L. Ellis Vice President Yearly Vice President of The 2 None
(55) and Treasurer since 1985 Co-operative Central
75 Park Plaza, Bank,
Boston, MA Boston, Massachusetts
02116-3934
Annemarie Lee Vice President Yearly Vice President of The 2 None
(46) and Clerk of the since 1985 Co-operative Central
75 Park Plaza, Corporation Bank,
Boston, MA (since June 19, 2003); Boston, Massachusetts
02116-3934 and Vice President
prior thereto
John R. McSorley Vice President Yearly Vice President of 2 None
(62) since 2003 R. Seelaus & Co., Inc.
75 Park Plaza, Boston, Massachusetts
Boston, MA (2002-2003); Vice President
02116-3934 of PaineWebber Inc.,
Boston, Massachusetts
(1977-2000)
Peter W. Copelas Director Term ends President of the Heritage 2 None
(62) 2006, since Co-operative Bank,
5 Mustang Circle 2004 Salem, Massachusetts
Danvers, MA
01923
James F. Culhane Director and Term ends Chairman of the Board of 2 None
(74) Chairman of the 2006, since the North Cambridge
75 Charles Diersch St., Board 2000 Co-operative Bank,
E. Weymouth, MA Cambridge, Massachusetts
02189 (since May 2002) and
President prior thereto
Alfonso De Vito Director* Term ends Chairman of the Board 2 None
(68) 2006, since of The Village Bank,
26 Rustic Street, 1999 Newton, Massachusetts
Newton, MA
02458
15
Number of
Portfolios Other
Term of in Fund Directorships
Office and Complex of Public
Name, Age Position(s) Held Length of Principal Occupation(s) Overseen by Companies
and Address With Fund Time Served During Past 5 Years Directors Held
----------- ---------------- ----------- ----------------------- ----------- -------------
<s> <c> <c> <c> <c> <c>
Edward T. Mulvey Director* Term ends Chairman of the Board 2 None
(69) 2005, since of the Pilgrim
50 Pond Street, 1999 Co-operative Bank,
Cohasset, MA Cohasset, Massachusetts
02025
Harold S. Otto Director Term ends President of the Methuen 2 None
(54) 2005, since Co-operative Bank
44 Laconia Circle 2002 Methuen, Massachusetts
North Andover, MA
01845
Robert W. Terravecchia, Jr. Director* Term ends President of the Weymouth 2 None
(40) 2007, since Bank,
15 Tayla Drive, 2003 Weymouth, Massachusetts
Weymouth, MA (since 2000) and Treasurer
02189 prior thereto
Joseph F. Truskowski, Jr. Director Term ends President of the 2 None
(54) 2007, since Adams Co-operative
55 Orchard Hill 2004 Bank,
North Adams, MA Adams, Massachusetts
02145
<FN>
* Members of the Audit Committee
</FN>
16
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17
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
The financial highlights table is intended to help you understand the
Fund's financial performance for the past 10 years. Certain information
reflects financial results for a single fund share. The total returns in
the table represent the rate that an investor would have earned (or lost)
on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Parent, McLaughlin &
Nangle, whose report, along with the Fund's financial statements, are
included elsewhere herein.
Year Ended December 31,
------------------------------------
2004 2003 2002
---- ---- ----
<s> <c> <c> <c>
Net asset value, beginning of year $ 992.27 $1,000.47 $ 998.09
-------- --------- ---------
Income from investment operations:
Net investment income 20.06 23.86 38.68
Net realized and unrealized gain (loss)
on investment transactions (13.10) (8.20) 2.38
-------- --------- ---------
Total from investment operations 6.96 15.66 41.06
-------- --------- ---------
Less distributions:
Dividends from net investment income (20.06) (23.86) (38.68)
Distributions from capital gains 0.00 0.00 0.00
-------- --------- ---------
Total distributions (20.06) (23.86) (38.68)
-------- --------- ---------
Net asset value, end of year $ 979.17 $ 992.27 $1,000.47
======== ========= =========
Total return 0.71% 1.58% 4.20%
Ratios/Supplemental data:
Net assets, end of year (in 000's) $ 49,568 $ 89,935 $ 214,692
Ratio of expenses to average net assets 0.38% 0.18% 0.25%
Ratio of net investment income to average
net assets 2.06% 2.45% 3.73%
Portfolio turnover rate 28.08% 102.16% 80.30%
Portfolio turnover was computed including U.S. Governments and U.S.
Government Agency obligations with maturities in excess of one year.
See notes to financial statements.
18
Year Ended December 31,
--------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c> <c>
Net asset value, beginning of year $ 981.89 $ 956.42 $ 987.50 $ 983.75 $ 974.80 $ 996.20 $ 944.75
-------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 50.27 53.96 54.08 56.88 58.35 60.41 66.14
Net realized and unrealized gain (loss)
on investment transactions 16.20 25.47 (31.08) 3.75 8.95 (21.40) 51.45
-------- -------- -------- -------- -------- -------- --------
Total from investment operations 66.47 79.43 23.00 60.63 67.30 39.01 117.59
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (50.27) (53.96) (54.08) (56.88) (58.35) (60.41) (66.14)
Distributions from capital gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- -------- --------
Total distributions (50.27) (53.96) (54.08) (56.88) (58.35) (60.41) (66.14)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of year $ 998.09 $ 981.89 $ 956.42 $ 987.50 $ 983.75 $ 974.80 $ 996.20
======== ======== ======== ======== ======== ======== ========
Total return 6.91% 8.59% 2.40% 6.32% 7.12% 4.10% 12.78%
Ratios/Supplemental data:
Net assets, end of year (in 000's) $109,089 $106,536 $113,205 $128,475 $143,608 $151,591 $146,555
Ratio of expenses to average net assets 0.34% 0.52% 0.52% 0.48% 0.45% 0.43% 0.45%
Ratio of net investment income to average
net assets 5.08% 5.64% 5.59% 5.74% 5.98% 6.21% 6.75%
Portfolio turnover rate 120.13% 6.42% 26.48% 50.00% 25.93% 49.26% 84.45%
See notes to financial statements.
19
Form of Letterhead of Parent, McLaughlin & Nangle
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
BANK INVESTMENT FUND-FUND ONE
BOSTON, MASSACHUSETTS
We have audited the accompanying statement of assets and liabilities
of Bank Investment Fund-Liquidity Fund, including the schedule of portfolio
of investments, as of December 31, 2004, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the ten years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 2004, by correspondence with the custodians and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Bank Investment Fund-Liquidity Fund as of December 31, 2004,
the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the ten years in the period then ended, in
conformity with accounting principles generally accepted in the United
States of America.
/s/ Parent, McLaughlin & Nangle
Certified Public Accountants
Member of Public Company Accounting Oversignt Board
Boston, Massachusetts
January 20, 2005
20
BANK INVESTMENT FUND-FUND ONE
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<s> <c>
ASSETS:
INVESTMENTS IN SECURITIES, at value
(Identified cost $48,099,517) $ 47,433,898
REPURCHASE AGREEMENTS 1,810,000
INTEREST RECEIVABLE 351,339
OTHER ASSETS 210
CASH 89,601
------------
TOTAL ASSETS 49,685,048
------------
LIABILITIES:
DIVIDENDS PAYABLE 44,690
ACCRUED EXPENSES 72,708
------------
TOTAL LIABILITIES 117,398
------------
NET ASSETS: (Equivalent to $979.1735 per share based on 50,621.9280 shares of
beneficial interest outstanding) $ 49,567,650
============
REPRESENTED BY:
Paid-in Capital $ 67,442,844
Accumulated net losses on investments (17,209,575)
Unrealized depreciation of investments-net (665,619)
------------
TOTAL NET ASSETS $ 49,567,650
============
See notes to financial statements.
21
BANK INVESTMENT FUND-FUND ONE
STATEMENT OF OPERATIONS
Year Ended December 31, 2004
<s> <c> <c>
INVESTMENT INCOME: $1,656,310
EXPENSES:
Compensation, payroll taxes and benefits-officers $46,428
Compensation, payroll taxes and benefits-other 52,354
Occupancy 49,300
Professional fees 26,800
Distribution expenses 21,392
Equipment and data processing 15,684
Directors' fees 10,400
Insurance expense 9,200
Other bank fees 6,800
Postage and telephone 6,400
Meetings and travel 6,100
Shareholder reports 5,028
Other expenses 2,236
Stationary and supplies 2,100
-------
TOTAL EXPENSES 260,222
----------
INVESTMENT INCOME-NET 1,396,088
----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investments (131,193)
Change in net unrealized depreciation on investment securities (823,733)
----------
Net realized and unrealized loss on investments (954,926)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 441,162
==========
See notes to financial statements.
22
BANK INVESTMENT FUND-FUND ONE
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
------------------------------
2004 2003
---- ----
<s> <c> <c>
INCREASE IN NET ASSETS FROM OPERATIONS:
Investment income-net $ 1,396,088 $ 4,178,783
Net realized gain (loss) on investments (131,193) 121,729
Unrealized depreciation-net (823,733) (1,786,666)
------------ -------------
Net increase in net assets resulting from operations 441,162 2,513,846
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net (1,396,088) (4,178,783)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST-
NET DECREASE (39,412,385) (123,092,432)
------------ -------------
TOTAL DECREASE IN NET ASSETS (40,367,311) (124,757,369)
NET ASSETS:
Beginning of year 89,934,961 214,692,330
------------ -------------
End of year $ 49,567,650 $ 89,934,961
============ =============
See notes to financial statements.
23
BANK INVESTMENT FUND-FUND ONE
PORTFOLIO OF INVESTMENTS
December 31, 2004
Obligations of Federal Agencies-93.5%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
Federal Home Loan Bank $ 4,000,000 2.04% 03/03/06 $ 3,953,502
4,000,000 2.125 03/17/06* 3,955,355
4,000,000 2.00 07/10/06* 3,930,412
4,000,000 2.00 07/14/06* 3,930,487
4,000,000 2.075 07/28/06 3,931,691
2,000,000 2.30 12/29/06 1,960,196
4,000,000 2.25 01/29/07 3,912,336
4,000,000 2.66 02/13/07 3,943,674
4,000,000 2.50 04/30/07 3,920,000
----------- -----------
$34,000,000 (Cost $34,000,000) $33,437,653
----------- -----------
Federal Home Loan Mortgage
Corporation $ 5,000,000 3.875% 02/15/05 $ 5,008,373
4,000,000 2.08 05/26/06* 3,942,544
4,000,000 2.15 06/02/06 3,945,328
----------- -----------
$13,000,000 (Cost $12,999,517) $12,896,245
----------- -----------
Total Federal Agencies
Obligations (Cost $46,999,517) $46,333,898
-----------
Certificates of Deposit-2.2%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
NCB, FSB $ 1,000,000 2.15% 01/20/05 $ 1,000,000
NCB, FSB 100,000 2.20 02/08/05 100,000
----------- -----------
$ 1,100,000 (Cost $ 1,100,000) $ 1,100,000
----------- -----------
<FN>
- --------------------
* May be subject to call by issuer prior to maturity date.
</FN>
See notes to financial statements.
24
BANK INVESTMENT FUND-FUND ONE
PORTFOLIO OF INVESTMENTS (continued)
December 31, 2004
Repurchase Agreement-3.6%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
$1,810,000 Repurchase Agreement dated December 31, 2004 with
Morgan Stanley Dean Witter, Inc. due January 3, 2005
with respect to $1,805,000 U.S. Treasury Note 6.50% due
May 15, 2005-maturity value $1,810,324.29 for an ef-
fective yield of 2.15%.
(Cost $ 1,810,000) $ 1,810,000
-----------
Total Investments-99.3% (Cost $49,909,517) $49,243,898
-----------
Other assets in excess of liabilities-0.7% 323,752
-----------
Net assets-100% $49,567,650
===========
See notes to financial statements.
25
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Organization:
The Bank Investment Fund (the "Corporation") was organized effective
April 7, 1985 pursuant to a Special Act of the Commonwealth of
Massachusetts (Acts of 1984, Chapter 482, as amended,) under its chartered
name "Co-operative Bank Investment Fund" and does business under the name
"Bank Investment Fund." The Corporation is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
Corporation invests and manages two mutual investment funds derived from
the voluntary subscriptions made by eligible investors.
Fund One (the "Fund") is a no-load, diversified, open-end investment
fund. Fund shares are currently offered to the following eligible
investors: Massachusetts Co-operative Banks, Massachusetts Savings Banks,
Massachusetts Trust Companies, Federally Chartered Savings Banks and
Savings and Loan Associations with their principal place of business in
Massachusetts, The Co-operative Central Bank Reserve Fund, The Savings Bank
Life Insurance Company of Massachusetts, the National Cooperative Bank, and
directly or indirectly wholly-owned subsidiaries of such institutions.
Because more than one fund will be operated by the Corporation,
operating expenses related directly to a single fund operation will be
charged directly to that fund. Common or indirect expenses will be
allocated among funds in proportion to the ratio of the net assets of each
fund to total net assets of the Corporation or on such other basis as the
Board of Directors of the Corporation may determine from time to time to be
fair and equitable.
NOTE 2. Significant Accounting Policies:
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of
management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
26
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Investment security valuation:
U.S. debt securities are normally valued on the basis of valuations
provided by market makers. Such prices are believed to reflect the fair
value of such securities and to take into account appropriate factors such
as institutional size trading in similar groups of securities, yield
quality, coupon rate, maturity, type of issue, and other market data.
Securities for which market quotations are not readily available will be
valued at fair value using methods determined in good faith by or at the
direction of the Board of Directors.
Accounting for investments:
Security transactions are accounted for on the trade date (date the
order to buy or sell is executed). In computing net investment income prior
to January 1, 1997, the Fund did not amortize premiums or accrete discounts
on fixed income securities in the portfolio, except those original issue
discounts for which amortization is required for federal income tax
purposes. Since January 1, 1997, the Fund amortizes premiums or accretes
discounts on related fixed income securities, which change had an
immaterial effect on investment income. Premiums, if any, and discounts are
amortized or accreted on a straight line basis, which approximates the
income method. Additionally, with respect to market discount on bonds
issued after July 18, 1984, a portion of any capital gain realized upon
disposition may be recharacterized as taxable ordinary income in accordance
with the provisions of the 1984 Tax Reform Act. Realized gains and losses
on security transactions are determined on the identified cost method.
Repurchase agreements:
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying investments to ensure the existence of a proper level of
collateral.
Federal income taxes:
The Corporation's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. The Fund realized a
tax basis loss of ($106,266) during 2004, resulting in a remaining capital
loss carryforward of ($128,714) at December 31, 2004. Such capital loss
carryforward will reduce the Fund's taxable income arising from future net
realized gain on investments, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income tax. Such capital loss carryforward will
expire on December 31, 2008 ($22,448) and December 31, 2012 ($106,266).
27
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Dividends to shareholders:
The Fund distributes all of its net investment income on a daily
basis. Dividends are declared on each day that the Fund is open for
business. Investors receive dividends in additional shares unless they
elect to receive cash. Payment is made in additional shares at the net
asset value on the payable date or in cash, on a monthly basis.
Distributions of otherwise taxable realized net capital gains, if any, are
declared and paid once each year and are reinvested in additional shares at
net asset value or, at each shareholder's option, paid in cash.
Net asset value:
The net asset value per share is determined daily by adding the
appraised value of all securities and all other assets, deducting
liabilities and dividing by the number of shares outstanding.
NOTE 3. Security Transactions:
The cost of securities purchased and the proceeds from the sales of
securities, all of which were Obligations of U.S. Treasuries and Federal
Agencies and bank certificates of deposit, (excluding short-term
investments) aggregated $16,206,388 and $54,834,749, respectively for the
year ended December 31, 2004. As of December 31, 2004, unrealized
depreciation of investments was ($665,619); accumulated net realized loss
on investment transactions totaled ($17,209,575).
NOTE 4. Distribution Expenses:
The Fund has adopted a Plan of Distribution (the "Plan"), pursuant to
rule 12b-1 under the Investment Company Act of 1940, to use the assets of
the Fund to finance certain activities relating to the distribution of its
shares to investors. The Plan authorizes the Fund to pay for the cost of
preparing, printing, and distributing offering circulars to prospective
investors, for certain other direct or indirect marketing expenses, direct
payments to sales personnel, and for the cost of implementing and operating
the Plan. Plan expenses may not exceed an amount computed at an annual rate
of .12 of 1% of the Fund's average daily net assets. The Fund paid or
accrued $21,392 (.03% of average net assets) pursuant to this Plan for the
year ended December 31, 2004.
28
BANK INVESTMENT FUND-FUND ONE
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5. Pension Plans:
The Fund is a participating employer in the Co-operative Banks
Employees Retirement Association, and has, in effect, a Defined
Contribution Plan covering all eligible officers and employees. Under the
plan, contributions by employees are doubled by the Fund, up to a maximum
of 10% of each employee's salary. Effective January 1, 1989, the Fund also
participates in a Defined Benefit Plan, which covers all eligible
employees, and is funded currently. The Fund's contributions to these
multi-employer plans for the year ended December 31, 2004 was $15,777.
NOTE 6. Shares of Beneficial Interest:
Chapter 482 of the Acts of 1984, as amended, of the Commonwealth of
Massachusetts permits the directors to issue an unlimited number of full
and fractional shares of beneficial interest (no par, non-voting, with a
stated value of $1,000 per share). As of December 31, 2004 capital paid-in
aggregate was $67,442,844.
Transactions in shares of beneficial interest are summarized as
follows:
Year Ended Year Ended
December 31, 2004 December 31, 2003
---------------------------- ------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<s> <c> <c> <c> <c>
Sold 17,109.5805 $ 16,966,217 74,508.0791 $ 74,259,582
Issued in reinvestment of dividends 659.0243 649,667 1,564.0312 1,557,657
------------ ------------ ------------- -------------
17,768.6048 17,615,884 76,072.1103 75,817,239
Redeemed 57,782.0128 57,028,269 200,027.2810 198,909,671
------------ ------------ ------------- -------------
Net decrease (40,013.4080) $(39,412,385) (123,955.1707) $(123,092,432)
============ ============ ============= =============
NOTE 7. Transactions With Related Parties:
The Incorporators of the Corporation are the Directors of The Co-
operative Central Bank, which is the statutory reserve bank and insurer of
deposits in excess of Federal deposit insurance limitations for
Massachusetts co-operative banks. The Board of Directors of the Corporation
is elected by the Incorporators.
The Fund reimburses The Co-operative Bank and receives reimbursement
from the Bank Investment Fund-Liquidity Fund for its proportionate share of
expense items used in common. All fees and expenses for the Fund are
estimated and accrued daily. Actual operating expenses for the year ended
December 31, 2004 was .38% of average net assets. As reimbursement of
allocated expenses, operating expenses paid to The Central Bank for the
year ended December 31, 2004 was $63,300. The Fund accrued or received from
the Bank Investment Fund-Liquidity Fund for the year ended December 31,
2004 the amount of $173,900.
29
This sheet and the following sheet are perforated for your removal
and use in the establishment or updating of your account.
CERTIFICATE OF CORPORATE RESOLUTION
For Massachusetts Co-operative Banks, Massachusetts Savings Banks,
Massachusetts Trust Companies, Federally Chartered Savings Banks and
Savings and Loan Associations with their principal place of business in
Massachusetts, The Co-operative Central Bank Reserve Fund, The Savings Bank
Life Insurance Company of Massachusetts, the National Cooperative Bank and
directly or indirectly wholly-owned subsidiaries of such institutions only.
This form authorizes the individuals below to redeem shares by telephone or
exchange.
The undersigned is Secretary or Clerk of _________________ and hereby
certifies that the following individuals: (name of corporation)
Name Title
---- -----
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
are duly authorized by corporate resolution or otherwise to act on behalf
of the eligible bank in connection with its ownership of shares in the Bank
Investment Fund, Fund One and in particular to give instructions for the
purchase, sale or exchange of any said shares and to execute any necessary
forms in connection therewith.
The Bank Investment Fund will consider this authorization to be in
full force and in effect until otherwise notified in writing.
IN WITNESS WHEREOF, the undersigned has executed this Certificate the
_______________ day of
___________________ 20__________.
___________________________________________________________________________
Secretary or Clerk
30
BANK INVESTMENT FUND
FUND ONE
ACCOUNT APPLICATION FORM
REGISTRATION. The account should be registered as follows:
DATE: ____________
NAME: _____________________________________________________________________
POST OFFICE BOX: __________________________________________________________
STREET ADDRESS: ___________________________________________________________
CITY/TOWN: ______________________________________ STATE: __________________
ZIP CODE: ____________________________ TELEPHONE NUMBER: __________________
TAX ID NUMBER _____________________________________________________________
FAX NUMBER:_____________________________ E-MAIL ADDRESS: __________________
INITIAL INVESTMENT: $____________________________________ (Minimum $50,000)
MONTHLY CASH DIVIDENDS
[ ] Check if dividends are to be paid monthly in cash. Otherwise
dividends will be AUTOMATICALLY REINVESTED in additional shares of
the Fund.
TELEPHONE REDEMPTION ORDERS
Redemption proceeds will be sent ONLY to the bank or trust company
listed below, for credit to the investor's account. The investor hereby
authorizes the BANK INVESTMENT FUND to honor telephone or written
instructions, without a signature guarantee, for redemption of Fund shares.
THE FUND and its Agents will not be liable for any loss, expense or cost
arising out of such transactions.
Enclose a specimen copy of your check or deposit slip (marked VOID)
for the bank account listed below. To facilitate the wiring of your
redemption proceeds the indicated bank should be a commercial bank.
Name of Bank: _____________________________________________________________
Bank Account No.: _________________________________________________________
Bank Address: _____________________________________________________________
street
_______________________________________________ MA __________
city zip
Name on Account: __________________________________________________________
Bank Routing/Transit No.: _________________________________________________
AUTHORIZED PERSONS-TELEPHONE INVESTMENTS AND REDEMPTIONS
Authorized person Title Initials
----------------- ----- --------
1. ________________________________________________________________________
2. ________________________________________________________________________
3. ________________________________________________________________________
4. ________________________________________________________________________
5. ________________________________________________________________________
31
CORPORATE RESOLUTIONS
We have enclosed with this application form the necessary corporate
resolutions to authorize corporate officers to make wire or cash payment
transfers to the Bank Investment Fund and to purchase, sell or exchange
shares of beneficial ownership in the Bank Investment Fund, Fund One.
SIGNATURE AND CERTIFICATION
We have received and read the Offering Circular, and agree to its
terms and conditions by signing below. By the execution of this
Application, the undersigned represent and warrant that they are duly
authorized to sign this Application and to purchase or redeem shares of the
Fund on behalf of the investor.
The undersigned hereby certify under penalty of perjury that the
above Taxpayer Identification Number is correct and that the investor is
not subject to backup withholding.
We further certify and agree that the certifications, authorizations
and appointments in this document will continue until the Bank Investment
Fund receives actual written notice of any change thereof.
Signature _____________________________ Title _____________________________
Signature _____________________________ Title _____________________________
Two signatures are required, one of which should be the Secretary or Clerk
of the corporation.
SIGNATURE GUARANTEE
In order to facilitate telephone redemptions, you must have your
signature(s) on this application guaranteed by a commercial bank or stock
exchange member firm.
___________________________________________________________________________
Name of Bank or Investment Dealer
___________________________________________________________________________
By (signature of authorized person)
___________________________________________________________________________
Title (authorized person)
32
FINANCIAL STATEMENTS
As required by applicable statutes, semi-annual financial statements
are furnished to the shareholder, the Commissioner of Banks and the
Securities and Exchange Commission.
ADDITIONAL INFORMATION
The Bank Investment Fund (the "Corporation") has filed with the
Securities and Exchange Commission in Washington, D.C., under the chartered
name the "Co-operative Bank Investment Fund" a registration statement on
Form N-1A (together with all amendments and exhibits thereto, hereinafter
referred to as the "Registration Statement") under the Investment Company
Act of 1940. This Offering Circular does not contain all of the information
in the Registration Statement. The Corporation has also filed a complete
schedule of portfolio holdings Form N-Q with the Securities and Exchange
Commission. The Registration Statement may be reviewed and copied at the
Public Reference Room of the Securities and Exchange Commission; or:
By Phone: 1-800-Sec-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
(Investment Company Act File No. 811-4421)
The Corporation will provide, without charge to any person to whom
this Offering Circular is delivered on the written or oral request of any
such person, a copy of the Registration Statement and the additional
information contained therein and documents relating to certain exemptions
from the Investment Company Act of 1940 (see ORGANIZATION). Written
requests should be directed to the Bank Investment Fund, 75 Park Plaza,
Boston, MA 02116-3934. Telephone requests may be directed collect to 617-
695-0415.
==================================
BANK INVESTMENT FUND
FUND ONE
[LOGO]
75 Park Plaza
Boston, MA 02116-3934
617-695-0415
Web: www.bankinvestmentfund.com
E-mail: bif@bankinvestmentfund.com
==================================
BANK INVESTMENT FUND LIQUIDITY FUND
(Series 2)
ANNUAL REPORT
December 31, 2004
OFFERING CIRCULAR
- -----------------
[LOGO] Bank Investment Fund
Liquidity Fund
75 Park Plaza
Boston, Massachusetts 02116-3934
617-695-0415
--------------------
The Bank Investment Fund (the "Corporation") is an investment company
which currently invests and manages two mutual funds derived from voluntary
subscriptions made by eligible investors.
Liquidity Fund (the "Fund") is a no-load, diversified, open-end money
market investment fund whose objective is maximum current income consistent
with liquidity and the preservation of capital. The Fund is designed solely
for use by eligible investors as an economical and convenient way to make
liquid investments. Fund shares are currently offered to the following
eligible investors: Massachusetts Co-operative Banks, Massachusetts Savings
Banks, Massachusetts Trust Companies, Federally Chartered Savings Banks and
Savings and Loan Associations with their principal place of business in
Massachusetts, The Co-operative Central Bank Reserve Fund, The Savings Bank
Life Insurance Company of Massachusetts and the National Cooperative Bank
(sometimes hereinafter called "Banks").
Investors should read this Offering Circular and retain it for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSIONER OF BANKS OF THE COMMONWEALTH OF MASSACHUSETTS (the
"Commissioner of Banks"), NOR HAS THE COMMISSIONER OF BANKS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED BY ANY GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND IS NOT
GUARANTEED OR INSURED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT
THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE. SUCH SHARES ARE
BEING OFFERED PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES ACTS AND HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER SUCH ACTS.
--------------------
The date of this Offering Circular is February 28, 2005
TABLE OF CONTENTS
Page
----
Risk Return Summary 1
Investment Objectives 1
Principal Investment Strategies 1
Principal Investment Risk 2
Bar Chart and 7 Day Yield 2
Fee Table 3
Investment Objectives and Restrictions 4
Statutory Limitation on Investments 5
Dividends 6
Net Asset Value 6
Investors' Accounts 6
Investors' Privacy 6
Taxes 6
Auditors and Legal 7
Capital Gains or Losses 7
How Shares of Fund are Purchased 7
How Shares of Fund are Redeemed 8
Transfer Restrictions 8
Organization 9
Description of Fund Shares 10
Supervision and Regulation 10
Investment Advisor 10
Transfer Agent 10
Operating and Distribution Expenses 11
Exchange Privilege 11
Custodian 12
Management of the Fund 12
Financial Highlights 16
Independent Auditor's Report 18
Financial Statements 19
Investments 22
Notes to Financial Statements 24
Account Application Forms 29
Additional Information Back Cover
BANK INVESTMENT FUND
LIQUIDITY FUND
75 Park Plaza
Boston, Massachusetts 02116-3934
RISK RETURN SUMMARY
Investment Objectives
The investment objectives of Liquidity Fund is to maximize current
income consistent with liquidity of assets and safety of principal.
The Fund was formed to provide participating banks with a highly
liquid, diversified, high-quality investment vehicle designed to assist
liquidity management, while seeking preservation of capital.
Principal Investment Strategies
In addition to maintaining cash on hand and in checking accounts due
from banks, the Fund invests principally in short-term marketable debt
securities issued by the United States Government or by agencies of the
United States, bank money instruments, repurchase agreements, short-term
corporate debt instruments, commercial paper, and reverse repurchase
agreements.
The categories of those securities include, but may not be limited to
a) certificates of deposit due from any trust company, national banking
association or banking company, or any federally insured savings banks, co-
operative bank or savings & loan association, b) Federal funds sold, c)
bonds and other direct obligations of the United States which are
unconditionally guaranteed as to principal and interest by the United
States, and issues of U.S. Government agencies and instrumentalities, d)
repurchase agreements, e) commercial paper which, when purchased, is rated
A-1 by Standard & Poor's Corporation ("Standard & Poor's") and/or Prime-1
by Moody's Investors Service, Inc. ("Moody's") or, if not rated, has been
determined to be of comparable high quality under procedures adopted and
approved by the Fund's Board of Directors. Commercial paper obligations may
include variable amount of master demand notes; short-term obligations of
corporations; f) Second Tier securities to the extent permissible by Rule
2a-7 of the Investment Company Act of 1940 (see investment restrictions)
including commercial paper which when purchased is rated A-2 by Standard &
Poor's or Prime-2 by Moody's or if not rated, has been determined to be of
comparable quality under procedures adopted and approved by the Fund's
Board of Directors, and g) certain money market instruments which, when
purchased, are rated A-1 by Standard and Poor's Corporation
and/or Prime-1 by Moody's Investor Services or, if not rated, has been
determined to be of comparable high quality under procedures adopted and
approved by the Fund's Board of Directors.
All the above investments must have original maturities or remaining
maturities of 397 days or less. In addition, the Fund will maintain a
dollar weighted average maturity of 90 days or less.
The Fund may invest more than 25% of its assets in the banking
industry through certificates of deposit and Federal funds sold in the
ordinary course of its business. However, the Fund will not invest more
than 35% of the Fund's assets in that industry. The Fund will not
concentrate it's investments in any other industry other than banking.
The Fund may enter into reverse repurchase agreements to meet short-
term liquidity needs of the Fund. These agreements may not be in excess of
three business days.
1
Principal Investment Risk
The main risk factor in the Fund's performance is interest rates, the
fluctuation of which will cause the income of the Fund to correspondently
change. The average portfolio duration may cause a delayed effect before
the market interest rate change is fully reflected in the Fund's income
performance.
An additional risk factor in the Fund's performance, to a limited
extent, is credit risk. Credit risk is the chance that the issuer of the
security could have its credit rating downgraded or be unable to pay
interest and principal in a timely manner. While the credit quality of the
Fund's investment portfolio is extremely high based on the principal
investment strategies discussed above, the Fund is subject to some degree
of credit risk.
While the Fund seeks to maintain, it does not guaranty a stable net
asset value of $1,000 per share. In addition, the shares being offered are
not savings accounts or deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation, U.S. Government or its agencies.
Bar Chart and 7 Day Yield
The bar chart shows the changes of the Fund's total return
performance from year to year over a ten year period ended December 31,
2004.
BANK INVESTMENT FUND-LIQUIDITY FUND
ANNUAL TOTAL RETURN
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Percent 5.86 5.38 5.52 5.44 5.00 6.31 4.17 1.85 1.09 1.13
<FN>
- --------------------
During the ten-year period shown in the bar chart, the highest quarterly
return was 6.7% (for the quarter ended September 30, 2000) and the lowest
quarterly return was .88% (for the quarter ended March 31, 2004).
</FN>
2
The table shows how the Fund's average annual return for one, five
and ten years for the period ended December 31, 2004 compared to the 3
month U.S. Treasury Bill.
One Five Ten
Year Year Year
---- ---- ----
<s> <c> <c> <c>
Bank Investment Fund-Liquidity Fund 1.13% 2.89% 4.16%
U.S. Treasury Bill-3 month 1.44% 2.69% 3.97%
<FN>
- --------------------
Total returns are based on past results and are not a prediction of future
performance.
</FN>
The annualized average net yield of the seven-day period ended
December 31, 2004 was 1.86%. Yield is calculated based on the last 7 days
ending on the date of the most recent statement of Assets and Liabilities,
(as presented elsewhere within). The Fund's yield fluctuates as a result of
numerous factors. Therefore, the yield stated here is not necessarily
representative of the Fund's future yield. The most recent daily yield,
together with the 7 day yield for the most recent calendar month end may be
obtained by directly calling the rate line 617-695-0419 or by calling our
main office telephone number 617-695-0415 collect.
Fee Table
This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.
Year Ended
December 31, 2004
-----------------
<s> <c> <c>
Shareholder Transaction Expenses* 0%
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0%
12b-1 Fees .01%
Other Expenses
Compensation, Payroll, Taxes, & Benefits .06%
Occupancy .04%
Remainder .06%
---
.16%
---
TOTAL FUND OPERATING EXPENSES .17%
===
<FN>
- --------------------
* The Fund charges no sales load or deferred sales load on any
purchase, reinvested dividend, exchange, or redemption transactions.
</FN>
3
Example
You would pay the following expenses on a $10,000 investment,
assuming (1) 5% annual return and (2) with or without redemption at the end
of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<s> <c> <c> <c> <c>
December 31, 2004 $17.40 $54.90 $96.34 $219.98
The purpose of the foregoing table, which is based upon the Fund's
fiscal year ended December 31, 2004, is to assist you in understanding the
various costs and expenses that an investor in the Fund will bear directly
or indirectly. The Example provided is intended to show the dollar amount
of expenses that would be incurred over the indicated periods on a
hypothetical $10,000 investment in the Fund, assuming a 5% annual return
and assuming that the Fund's expenses continue at the rates shown in the
table. However, the actual return on an investment in the Fund may be
greater or less than 5%. Furthermore, the Example should not be considered
a representation of past or future expenses; actual expenses may be greater
or less than those shown.
INVESTMENT OBJECTIVES AND RESTRICTIONS
The investment objective of the Liquidity Fund is to maximize current
income consistent with liquidity of assets and safety of principal.
The Fund was formed to provide participating banks with a highly
liquid, diversified high-quality investment vehicle designed to assist
liquidity management while seeking preservation of capital. The Fund
pursues this objective by investing principally in short-term marketable
debt securities issued by the United States Government or by agencies of
the United States, bank money instruments, short-term corporate debt
instruments including commercial paper, repurchase agreements and reverse
repurchase agreements.
Shares of the Bank Investment Fund are eligible investments to be
included in legal liquidity under Massachusetts General Laws, Chapter 170,
Section 22.
The Board of Directors of the Corporation has investment discretion
with regard to Liquidity Fund assets.
No more than 5% of the Fund's assets at the time of purchase may be
invested in the securities of any one issuer except for direct obligations
of the United States or obligations guaranteed by the United States, and
other obligations issued under federal programs or by certain federal
agencies.
In accordance with amendments, effective June 1, 1991 to Rule 2a-7 of
the Investment Company Acts of 1940, no more than 5% of the Fund's assets,
in the aggregate, may be invested in "second tier" securities, with no more
than 1% of the Fund's assets or one million dollars, whichever is greater,
invested in the second tier securities of any one issuer.
The Fund is further restricted through the investment policy
maintained by the Corporation's Officers and Directors. The investment
policy restricts the Fund from a) purchasing any securities other than
money market
4
instruments and other securities described under "Principal Investment
Strategies", and b) investing more than 25% of its total assets in the
securities of a particular industry other than U.S. Government securities,
Government Agency securities or bank money instruments.
STATUTORY LIMITATION ON INVESTMENTS IN THE FUND
BY PARTICIPATING BANKS
Under Massachusetts General Laws, Chapter 167F, Section 3(2) as
amended, a participating or eligible savings bank or co-operative bank may
invest an amount in excess of 100% of its capital and surplus in any
distinct non-equity investment fund of the Corporation except to the extent
that the Commissioner of Banks for the Commonwealth of Massachusetts may by
regulation set limits and conditions. The participating bank will be
responsible for monitoring and compliance with this limitation.
Under Massachusetts General Laws, Acts of 1932, Chapter 45, Section
7, as amended, The Co-operative Central Bank Reserve Fund may not invest or
hold at any one time more than 20% of its assets with the Corporation.
Investments in the Fund are affected by Section 303 of the FDIC
Improvement Act of 1991 which limits investments by FDIC-insured state
banks (including Massachusetts co-operative banks, savings banks and trust
companies) in common or preferred stock or shares of mutual funds to the
extent that such investments are permissible for national banks.
Permissible national bank investments, as described in section 24(7) of the
National Bank Act and 12 C.F.R. Part 1, include mutual funds which invest
in securities and financial instruments eligible for direct investment by
national banks. The underlying investment portfolio composition of the
Liquidity Fund is comprised of assets (Federal agency obligations,
certificates of deposit, commercial paper, short-term corporate bonds and
notes, and Federal funds sold) that a national bank may purchase and sell
for its own account under 12 C.F.R. Part 1. An FDIC-insured state bank may
hold these investments directly or indirectly (i.e. pass-through mutual
fund investment) that are permissible for national banks without being
subject to limit restrictions for national banks. Therefore, Liquidity Fund
balances may be excluded (on a pass-through basis with shares of beneficial
interest) from an FDIC-insured state-chartered bank's (such as a
Massachusetts savings bank or co-operative bank) computation of equity
securities in measuring compliance with 12 C.F.R. 362 limits (usually 100%
of Tier 1 capital).
Federally chartered savings banks and savings and loan associations
(with their principal place of business in Massachusetts) may invest in an
open-end mutual fund, such as the Liquidity Fund, which invests in
securities and financial instruments in which such institutions may invest
directly (e.g., Federal agency obligations and high quality commercial
paper and corporate debt). For purposes of determining compliance with
quantitative investment limitations under the Home Owners Loan Act
("HOLA"), an investing bank's or association's proportionate share of a
mutual fund's individual investments will, under 12 C.F.R., 560.32, be
aggregated with such investments held directly by the bank or association.
Apart from this requirement, a bank or association may invest, without
prior notice to the Office of Thrift Supervision, an amount up to 15% of
its total capital in any one mutual fund or up to 50% of total capital in
all such pass-through investment vehicles. Investments in excess of the 15%
and 50% limits may only be made when thirty days' advance notice has been
provided to the Office of Thrift Supervision.
5
Certain federally chartered savings banks which converted from a
Massachusetts savings bank charter may, under certain grandfather
provisions of HOLA, retain broader investment authority than that described
in the preceding paragraph. For example, section 5(i) of HOLA grandfathers
state authorized investment powers of certain Federal savings banks in
existence as of the date of enactment of Federal statutes (e.g., the
Financial Institution Reform, Recovery and Enforcement Act of 1989) which
may have otherwise limited such investments.
DIVIDENDS
The Fund distributes all of its net income on a daily basis.
Dividends are declared on each day that the Fund is open for business.
Investors receive dividends in additional shares unless they elect to
receive cash. Payment is made in additional shares at the net asset value
on the payable date or in cash, on a monthly basis.
Investors wishing to change the method of receiving dividends must
notify the Fund in writing at least one week before payment is to be made.
Net income for dividend purposes consists of interest accrued and discount
earned, less amortization of any premium and accrued expenses, plus or
minus all realized short-term gains or losses, if any.
NET ASSET VALUE
The Fund's net asset value per share is determined by dividing the
value of all investment securities and all other assets, less liabilities,
by the number of shares outstanding. The Fund's investment securities are
valued based on their amortized cost, which does not take into account
unrealized appreciation or depreciation. The Corporation's Board of
Directors has established procedures reasonably designed to stabilize the
net asset value per share at $1,000.00.
INVESTORS' ACCOUNTS
The Fund maintains an account for each investor in full and
fractional shares. All purchase and sale transactions are confirmed to the
investor. Statements of account showing all transactions for the month,
including dividends paid, are sent to participating banks on a monthly
basis. In addition, statements of accounts showing all transactions for the
calendar year, including dividends paid, are sent to participating banks on
annual basis.
INVESTORS' PRIVACY
Protecting the privacy and confidentiality of investor's account
information is important to the Fund. We value your business and the trust
you placed with us. The Fund does not share any non-public information
concerning our investor banks with any other party; except as necessary, to
process transactions or service accounts. In addition, we maintain physical
and electronic control procedures to safeguard our business records
relative to investor accounts.
TAXES
The Fund has qualified as a regulated investment company under the
Internal Revenue Code and will not be liable for federal income taxes to
the extent its earnings are distributed. Dividends derived from interest,
together with distributions of any short-term capital gains, are taxable as
ordinary income, whether or not reinvested. Dividends of the Fund do not
qualify for the dividends received exclusion for corporations.
6
In 2004, the Fund incurred a federal income tax liability of $53,854
on $181,035 of undistributed income resulting from the non deductibility of
$181,035 in security losses on portfolio repositioning. The resulting loss
carry forward of $181,035 will expire on December 31, 2012. A corporate
officer voluntarily contributed $53,854 to the Fund in order for the Fund
to pay this federal income tax expense without either reducing the per
share distribution for December 2004 or reducing the per share net asset
value below $1,000.
A statement setting forth the federal income tax status of all
distributions made during each calendar year is sent to each shareholder
promptly after the end of such year.
AUDITORS AND LEGAL
Parent, McLaughlin and Nangle, Certified Public Accountants, Inc.,
are the auditors of the Fund. The law firm of Steptoe & Johnson has passed
upon certain legal matters of the Fund in connection with the shares
offered by this offering circular.
CAPITAL GAINS OR LOSSES
The Fund does not expect to experience long-term capital gains or
losses due to the short-term nature of the portfolio, and therefore the
Fund does not expect to pay capital gain dividends. The Fund recorded
short-term capital losses of $181,035 in connection with its repositioning
of the portfolio in November 2004.
HOW THE SHARES OF THE FUND ARE PURCHASED-
TELEPHONE INVESTMENT PROCEDURE
Shares of the Fund are offered for sale on days on which the New York
Stock Exchange is open for business. The Fund and its custodian bank
observe the following holidays during the calendar year: New Year's Day,
Martin Luther King Day, President's Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
There is no sales charge. The minimum initial investment is $50,000.
Additional investments may be made in any amount in excess of the minimum.
Bank Wire Transfers
Call your correspondent bank and speak to your account officer. Tell
him that you want to transfer funds to State Street Bank and Trust Company.
Instruct him to wire transfer the money before 2:00 P.M., Eastern Standard
Time, to:
State Street Bank and Trust Company
Boston, Massachusetts
Routing number: 0110-0002-8
For account of the Bank Investment Fund, Liquidity Fund
Account number: 9006-884-2
Internal Money Transfers
If your correspondent bank account is with the State Street Bank and
Trust Company, contact your account officer and instruct him to transfer
funds from your account to the account of the Bank Investment Fund,
Liquidity Fund, Account number: 9006-884-2.
7
AFTER INSTRUCTING YOUR BANK TO TRANSFER FUNDS, PLEASE CALL THE FUND
AND TELL US THE AMOUNT YOU TRANSFERRED AND THE NAME OF THE BANK SENDING THE
TRANSFER. YOUR BANK MAY CHARGE A FEE FOR SUCH SERVICES. REMEMBER, IT IS
IMPORTANT TO DO THIS BEFORE 2:00 P.M. EASTERN STANDARD TIME.
The securities market, in which the Fund buys and sells securities,
usually requires immediate settlement in Federal funds for all security
transactions; therefore, payment for the purchase of Fund shares must be
made by Federal funds or bank wire, which can be converted immediately into
Federal funds. Orders received prior to 2:00 P.M., Eastern Standard Time,
will be invested in shares of the Fund at the next determined net asset
value.
HOW SHARES OF THE FUND ARE REDEEMED-
TELEPHONE REDEMPTION PROCEDURE
An investor may withdraw all or any portion of his investment by
redeeming shares on any day that the Fund is open for business at the next
determined net asset value. The proceeds of redemptions will be wired
directly to the investor's bank account within one business day.
The right of redemption can be suspended and the payment of the
redemption proceeds deferred during any period in which a) the New York
Stock Exchange is closed or trading on such Exchange is restricted or b)
the Securities and Exchange Commission deems an emergency to exist, or
during any other period permitted by order of the Commission for the
protection of investors.
Bank Wire Transfers
Call the Fund by 2:00 P.M. Eastern Standard Time to redeem shares
that day (Trade Date), for payment the following day (Settlement Date).
When the amount to be redeemed is at least $5,000.00, the Fund will
automatically wire transfer the amount to your correspondent bank account
at settlement. The Fund will make payment by check when the amounts
redeemed are less than $5,000.00.
Internal Money Transfers
If your bank's account is with the State Street Bank and Trust
Company, contact the Fund by 2:00 P.M. Eastern Standard Time for redemption
of shares that day (Trade Date) for payment on the following day
(Settlement Date). The Fund will transfer the amount from its account to
your account at State Street Bank and Trust Company at settlement.
TRANSFER RESTRICTIONS
Fund shares may not be transferred by banks holding such shares to
any persons other than an eligible bank (except that the shares may be
pledged to such other persons or they may be transferred to the Central
Bank). If the Fund shares are acquired by any other persons by operation of
law or by foreclosure upon the pledge of such shares (or through transfer,
in the case of the Central Bank), the Corporation must offer to repurchase
the shares from such person at net asset value of the shares. If such offer
is refused, no dividend may be paid by the Corporation or Fund on such
shares, and the redemption price which the holder of such shares may obtain
in any subsequent repurchase of those shares by the Corporation or Fund is
limited to the net asset value of the shares on the date of the
Corporation's offer.
8
In the event of any transfer, it is extremely important to notify the
Corporation immediately of any purchase, sale or transfer of Fund shares
not made through the Corporation or its transfer agent. Immediate
notification should be furnished to the Corporation by telephone, with
written notification as a follow-up thereto. Prompt notification is
essential to avoid any delay in redemption offer and loss of earnings.
Please remember that a statutory restriction exists on the Corporation and
it would be unable to pay a dividend to an ineligible holder after
expiration of the 30-day repurchase period which is statutorily available
following such transfer.
ORGANIZATION
The Corporation was organized effective April 7, 1985 pursuant to a
Special Act of the Commonwealth [Acts of 1984, Chapter 482 as amended] of
Massachusetts under its chartered name "Co-operative Bank Investment Fund"
and does business under the name "Bank Investment Fund." The Special Act
indicates that the purpose of the Corporation is to hold, invest, reinvest
and manage one or more mutual investment funds, which shall include all
property of the Corporation, to be derived from voluntary subscription
thereto by the Banks.
The Liquidity Fund commenced operations on October 12, 1988.
The Corporation is an open-end diversified management investment
company authorized to invest its assets in certain real estate mortgages,
and a variety of other investments, including direct obligations of the
United States, obligations guaranteed by the United States, obligations
guaranteed by the Federal National Mortgage Association, bonds and other
evidences of indebtedness of corporations, shares of common or preferred
stock registered on a national securities exchange or for which quotations
are available through the National Quotation Bureau, Inc. or a comparable
service, or through a national securities market established in conformance
with Section 11A of the Securities Act of 1934, and other debt and equity
securities. The Liquidity Fund will only invest in those securities
described under "Principal Investments Strategies" and "Investment
Objectives and Restrictions" elsewhere herein.
The business of the Corporation is conducted by a Board of Directors
elected by the Corporation's Incorporators and the Directors have
investment discretion relative to Corporation assets. The Incorporators of
the Corporation are the Directors of The Co-operative Central Bank, which
is the statutory reserve bank and insurer of deposits in excess of Federal
deposit insurance limitations for Massachusetts co-operative banks.
The Corporation operates pursuant to an exemption from the sections
of the Investment Company Act of 1940 which deal with a) voting rights of
security holders and b) the manner of sale of redeemable securities.
Only Massachusetts Co-operative Banks, Massachusetts Savings Banks,
Massachusetts Trust Companies, Federally Chartered Savings Banks and
Savings and Loan Associations with their principal place of business in
Massachusetts, The Co-operative Central Bank Reserve Fund, The Savings Bank
Life Insurance Company of Massachusetts and the National Cooperative Bank
are currently offered shares in the Fund. Such investors may purchase
shares of beneficial interest, which do not entitle the shareholders
thereof to voting rights of any nature, including investment policy
matters.
9
DESCRIPTION OF FUND SHARES
The Corporation has no capital stock. Beneficial ownership in each of
the Corporation's funds is represented by shares of beneficial ownership in
such fund, as recorded in book entry form. Each share of beneficial
interest in each fund is equal in every respect to every other share of
that fund. As the Directors of the Corporation establish distinct
investment funds, shares will be issued in distinct classes and each share
within each class will be equal in every respect to every other share of
that class.
The shares of beneficial ownership are no par, non-voting, with a
stated value of $1,000, issued in book entry form only. Investment and
redemption of shares is effected at the net asset value as described
elsewhere herein. Shares are recorded in whole and/or fractional shares, as
applicable. Physical certificates are not issued. Monthly statements are
furnished to reflect share balance and activity.
With regard to the absence of voting rights, management believes that
eligible investors are adequately protected because of a) regulation by the
Commissioner of Banks, b) the redeemable nature of the shares, c)
representation of co-operative bank investors in the election of Directors
of the Central Bank, who as Incorporators elect the Corporation's
Directors, and d) representation of savings bank investors by an advisor at
such corporate meetings of the Incorporators.
SUPERVISION AND REGULATION
As provided by Massachusetts statute [Chapter 482, Acts of 1984 as
amended] the Corporation is subject to the supervision of the Commissioner
of Banks of the Commonwealth of Massachusetts. Periodic reporting to the
Commissioner of Banks is also required by the same statute. The Corporation
is registered as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended, and is subject to
reporting requirements thereunder.
INVESTMENT ADVISOR
The Corporation presently does not employ the services of any
investment advisory or management services company. Investment decisions
for the Fund are made by authorized officers of the Corporation, subject to
approval or ratification by its Board of Directors. The Corporation
reserves the right at any time in the future to appoint an investment
advisor at any reasonable and customary fee as may be agreed when, in the
opinion of the Corporation Directors, the use of such advisory or
management services would improve Fund performance.
TRANSFER AGENT
The Corporation maintains the records for the investment, redemption,
and/or transfer of Fund shares. The Corporation reserves its right at any
time in the future to appoint a separate transfer agent at any reasonable
and customary fee as may be agreed when, in the opinion of the Corporation
Directors, the use of such transfer service is necessary. The limited
number of shareholders and nature of Fund operation does not, at this time,
justify the use of a separate agent and would only be an extra or
unnecessary expense.
10
OPERATING AND DISTRIBUTION EXPENSES
Normal expenses which may be borne by the Fund include, but are not
limited to: Director fees, salaries and wages, payroll taxes, employee
benefits, taxes, corporate fees, occupancy, furniture and equipment, data
processing, legal, auditing and accounting, telephone and postage,
custodial and other bank fees, preparation, printing and distribution of
reports, insurance, membership fees, organization, and other miscellaneous
expenses.
The Corporation has adopted a plan of distribution pursuant to Rule
12b-1 of the Investment Company Act of 1940 (the "Plan") providing that the
Fund will pay certain expenses incurred by the Corporation which may be
considered to be primarily intended to result in the sale of shares in the
Fund. The expenses which may be incurred pursuant to the Plan include,
without limitation, those for the preparation, printing and distribution of
written materials for other than existing investors, preparation and
distribution of advertising material and sales literature, direct payments
to sales personnel, and other similar activities. The maximum expenditures
which may be made pursuant to the Plan in any year is .12 of 1% of the
average daily net asset value of the Corporation for such year. The Board
of Directors of the Corporation has concluded that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
Expenditures of $33,559 (.01% of average net assets) pursuant to the
12b-1 plan were incurred in and for the year ended December 31, 2004:
$1,939 for advertising in trade journals and similar publications; $5,065
for printing and mailing of offering circulars; $36,240 for sales related
compensation, payroll taxes and benefits; $9,963 for sponsorship of annual
subscriptions and other promotional materials; and ($19,648) for other plan
expenses.
Because more than one fund will be operated by the Corporation,
operating expenses and expenses incurred pursuant to the Plan related
directly to a single fund operation will be charged directly to that fund.
Common or indirect expenses will be allocated among funds in accordance
with the annual budget as determined by the Board of Directors of the
Corporation to be fair and equitable or on such other basis as the Board of
Directors of the Corporation may determine from time to time to be fair and
equitable.
The Fund accrued or paid the Bank Investment Fund-Fund One $173,900
for the year ended December 31, 2004 as a net reimbursement for the
proportionate share of expense items used in common by both funds. All fees
and expenses for the Fund are estimated and accrued daily. Actual operating
expenses for the year ended December 31, 2004 were .17% of average net
assets.
In 2004, the Fund incurred a federal income tax liability of $53,854
on $181,035 of undistributed income resulting from the non deductibility of
$181,035 in security losses on portfolio repositioning. A corporate officer
voluntarily contributed $53,854 to the Fund in order for the Fund to pay
this federal income tax expense without either reducing the per share
distribution for December 2004 or reducing the per share net asset value
below $1,000.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of another fund of the
Corporation on the basis of the respective net asset value of the shares
involved.
11
CUSTODIAN
The Corporation is required by statute to at all times employ a
national banking association located in the Commonwealth of Massachusetts,
or a Massachusetts state-chartered bank authorized to exercise trust
powers, as the Corporation's or Fund's custodian, to hold the securities
owned by the Corporation and any monies delivered by the Corporation's or
Fund's shareholders or due to the Corporation or Fund. Purchase and sale
transactions are effected through or by the custodian bank upon the
instructions of the Corporation.
The State Street Bank and Trust Company, 225 Franklin Street, Boston,
MA 02110, serves as custodian of the Fund's cash and investments, other
than cash and Federal funds sold. Investments held under custody include
certificates of deposit. The Fund also maintains cash and Federal fund
balances with a number of qualified national banks or Massachusetts state
chartered banks. The banks utilized have been determined by the officers
and directors of the Fund to have been qualified to be custodian banks
themselves. State Street Bank and Trust Company, the Fund's custodian, and
other qualified banks, as discussed above, may be used by the Fund for the
placement of short-term, usually overnight, funds in Federal funds sold.
MANAGEMENT OF THE FUND
The Incorporators of the Corporation are the Directors of The Co-
operative Central Bank which is the statutory reserve bank and insurer of
deposits in excess of Federal deposit insurance limitations for
Massachusetts co-operative banks. The Board of Directors of the Corporation
is elected by the Incorporators.
William F. Casey, Jr., President, has been the Fund's primary
investment officer since April 1, 2000. Previously, Mr. Casey held the
position of Executive Vice President of the Bank Investment Fund since its
inception in 1985. Mr. Casey is also President of the Co-operative Central
Bank and served as Financial Vice President from 1980 to 1986 and Executive
Vice President and Treasurer of the Co-operative Central Bank from 1986 to
2000. Mr. Casey is a Certified Public Accountant and had been employed in
several executive positions in both public accounting and banking prior to
1980.
The Fund is governed by a Board of Directors that meets quarterly to
review the Fund's investments, performance, expenses, and other business
affairs. The Board elects the Fund's officers. All Board members are
independent directors.
The directors and officers of the Corporation are not eligible to
hold the equity securities of the Corporation; the Corporation's charter
limits its eligible shareholders to certain Massachusetts banks and certain
other institutions. The directors are also directors and/or officers of co-
operative banks which may own beneficial interests in shares of the Fund.
Robert W. Terravecchia, Jr. was elected as a director in May 2003 by
the Board of Incorporators and appointed as an additional member of the
audit committee in June 2003 by the Board of Directors. Mr. Terravecchia is
both an attorney and certified public accountant in Massachusetts. Mr.
Terravecchia has been an officer of Weymouth Bank since 1994 and held
several positions in public accounting prior thereto. Mr. Terravecchia has
been designated as the audit committee member with financial expertise.
12
Directors and Officers of the Corporation, together with information
as to their principal business occupations during the past five years, are
shown below:
Number of
Portfolios Other
Term of in Fund Directorships
Office and Complex of Public
Name, Age Position(s) Held Length of Principal Occupation(s) Overseen by Companies
and Address With Fund Time Served During Past 5 Years Directors Held
----------- ---------------- ----------- ----------------------- ----------- -------------
<s> <c> <c> <c> <c> <c>
William F. Casey, Jr. President (since Yearly President of The 2 None
(60) April 1, 2000); since 1985 Co-operative Central
75 Park Plaza, Executive Vice Bank,
Boston, MA President prior Boston, Massachusetts
02116-3934 thereto (since April 1, 2001);
Executive Vice President
and Treasurer of The
Co-operative Central
Bank prior thereto
Susan L. Ellis Vice President Yearly Vice President of The 2 None
(55) and Treasurer since 1985 Co-operative Central
75 Park Plaza, Bank,
Boston, MA Boston, Massachusetts
02116-3934
Annemarie Lee Vice President and Yearly Vice President of The 2 None
(46) Clerk of the since 1985 Co-operative Central
75 Park Plaza, Corporation (since Bank,
Boston, MA June 19, 2003); and Boston, Massachusetts
02116-3934 Vice President
prior thereto
John R. McSorley Vice President Yearly Vice President of 2 None
(62) since 2003 R. Seelaus & Co., Inc.
75 Park Plaza, Boston, Massachusetts
Boston, MA (2002-2003); Vice
02116-3934 President of PaineWebber
Inc., Boston, Massachusetts
(1977-2000)
Peter W. Copelas Director Term ends President of the Heritage 2 None
(62) 2006, since Co-operative Bank,
5 Mustang Circle, 2004 Salem, Massachusetts
Danvers, MA
01923
13
Number of
Portfolios Other
Term of in Fund Directorships
Office and Complex of Public
Name, Age Position(s) Held Length of Principal Occupation(s) Overseen by Companies
and Address With Fund Time Served During Past 5 Years Directors Held
----------- ---------------- ----------- ----------------------- ----------- -------------
<s> <c> <c> <c> <c> <c>
James F. Culhane Director and Term ends Chairman of the Board of 2 None
(74) Chairman of the 2006, since the North Cambridge
75 Charles Diersch St., Board 2000 Co-operative Bank,
E. Weymouth, MA Cambridge, Massachusetts
02189 (since May 2002) and
President prior thereto
Alfonso De Vito Director* Term ends Chairman of the Board 2 None
(68) 2006, since of The Village Bank,
26 Rustic Street, 1999 Newton, Massachusetts
Newton, MA
02458
Edward T. Mulvey Director* Term ends Chairman of the Board 2 None
(69) 2005, since of the Pilgrim
50 Pond Street, 1999 Co-operative Bank,
Cohasset, MA Cohasset, Massachusetts
02025
Harold S. Otto Director Term ends President of the Methuen 2 None
(54) 2005, since Co-operative Bank
44 Laconia Circle 2002 Methuen, Massachusetts
North Andover, MA
01845
Robert W. Terravecchia, Jr. Director* Term ends President of the Weymouth 2 None
(40) 2007, since Bank,
15 Tayla Drive, 2003 Weymouth, Massachusetts
Weymouth, MA (since 2000) and Treasurer
02189 prior thereto
Joseph F. Truskowski, Jr. Director Term ends President of the 2 None
(54) 2007, since Adams Co-operative
55 Orchard Hill, 2004 Bank,
North Adams, MA Adams, Massachusetts
02145
<FN>
* Members of the Audit Committee
</FN>
14
--------------------
THIS PAGE LEFT BLANK INTENTIONALLY
--------------------
15
Financial Highlights
(For a share outstanding throughout each year)
The financial highlights table is intended to help you understand the
Fund's financial performance for the past 10 years. Certain information
reflects financial results for a single fund share. The total returns in
the table represent the rate that an investor would have earned (or lost)
on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Parent, McLaughlin &
Nangle, whose report, along with the Fund's financial statements, are
included elsewhere herein.
Year Ended December 31,
-----------------------------------
2004 2003 2002
---- ---- ----
<s> <c> <c> <c>
Net asset value, beginning of year $1,000.00 $1,000.00 $1,000.00
--------- --------- ---------
Income from investment operations:
Net investment income 11.89 10.89 18.38
Net realized loss on investment transactions (0.60) 0.00 0.00
--------- --------- ---------
Total from investment operations 11.29 10.89 18.38
--------- --------- ---------
Less distributions:
Dividends from net investment income (11.29) (10.89) (18.38)
--------- --------- ---------
Total distributions (11.29) (10.89) (18.38)
--------- --------- ---------
Net asset value, end of year $1,000.00 $1,000.00 $1,000.00
========= ========= =========
Total return 1.13%* 1.09% 1.85%
Ratios/Supplemental data:
Net assets, end of year (in 000's) $ 155,187 $ 401,193 $ 808,883
Ratio of expenses to average net assets before
federal income tax expense reduction 0.19% 0.12% 0.11%
Ratio of expenses to average net assets after
federal income tax expense reduction 0.17% 0.12% 0.11%
Ratio of net investment income to average net
assets 1.09% 1.10% 1.81%
<FN>
* Total return and ratio of net investment income to average net assets
would have been lower in 2004 had federal income tax expense not been
reduced during the period.
</FN>
See notes to financial statements.
16
Year Ended December 31,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c> <c>
Net asset value, beginning of year $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
--------- --------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 40.90 61.35 48.87 53.07 53.83 52.53 57.12
Net realized loss on investment transactions 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- --------- ---------
Total from investment operations 40.90 61.35 48.87 53.07 53.83 52.53 57.12
--------- --------- --------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income (40.90) (61.35) (48.87) (53.07) (53.83) (52.53) (57.12)
--------- --------- --------- --------- --------- --------- ---------
Total distributions (40.90) (61.35) (48.87) (53.07) (53.83) (52.53) (57.12)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of year $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
========= ========= ========= ========= ========= ========= =========
Total return 4.17% 6.31% 5.00% 5.44% 5.52% 5.38% 5.86%
Ratios/Supplemental data:
Net assets, end of year (in 000's) $ 667,421 $ 184,592 $ 175,656 $ 286,629 $ 235,204 $ 210,208 $ 245,151
Ratio of expenses to average net assets before
federal income tax expense reduction 0.14% 0.17% 0.15% 0.15% 0.16% 0.15% 0.13%
Ratio of expenses to average net assets after
federal income tax expense reduction 0.14% 0.17% 0.15% 0.15% 0.16% 0.15% 0.13%
Ratio of net investment income to average net
assets 3.72% 6.14% 4.84% 5.30% 5.22% 5.26% 5.75%
See notes to financial statements.
17
Form of Letterhead of Parent, McLaughlin & Nangle
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
BANK INVESTMENT FUND-LIQUIDITY FUND
BOSTON, MASSACHUSETTS
We have audited the accompanying statement of assets and liabilities
of Bank Investment Fund-Liquidity Fund, including the schedule of portfolio
of investments, as of December 31, 2004, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the ten years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 2004, by correspondence with the custodians and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Bank Investment Fund-Liquidity Fund as of December 31, 2004,
the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the ten years in the period then ended, in
conformity with accounting principles generally accepted in the United
States of America.
/s/ Parent, McLaughlin & Nangle
Certified Public Accountants
Member of Public Company Accounting Oversignt Board
Boston, Massachusetts
January 20, 2005
18
BANK INVESTMENT FUND-LIQUIDITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<s> <c>
ASSETS:
INVESTMENTS, at cost which approximates value $ 35,886,811
REPURCHASE AGREEMENTS 118,650,000
INTEREST RECEIVABLE 290,639
OTHER ASSETS 10,447
CASH 474,896
------------
TOTAL ASSETS 155,312,793
------------
LIABILITIES:
DIVIDENDS PAYABLE 54,166
ACCRUED EXPENSES 72,036
------------
TOTAL LIABILITIES 126,202
------------
NET ASSETS: (Equivalent to $1,000 per share based on 155,186.5910 shares of
beneficial interest outstanding) $155,186,591
============
REPRESENTED BY:
Paid-in Capital $155,186,591
Undistributed net investment income 181,035
Accumulated net realized losses on investments (181,035)
------------
TOTAL NET ASSETS $155,186,591
============
See notes to financial statements.
19
BANK INVESTMENT FUND-LIQUIDITY FUND
STATEMENT OF OPERATIONS
Year Ended December 31, 2004
<s> <c> <c>
INVESTMENT INCOME: $3,763,179
EXPENSES:
Compensation, payroll taxes and benefits-officers $ 87,197
Compensation, payroll taxes and benefits-other 98,329
Occupancy 100,019
Other bank fees 61,453
Professional fees 39,977
Distribution expenses 33,559
Equipment and data processing 31,941
Directors' fees 21,000
Insurance expense 19,116
Postage and telephone 13,488
Meetings and travel 12,361
Shareholder reports 5,065
Stationary and supplies 4,156
Federal income tax 54,554
Federal income tax reduction (53,854)
Other expenses (22,466)
--------
TOTAL EXPENSES 505,895
----------
INVESTMENT INCOME-NET 3,257,284
----------
REALIZED NET LOSS ON INVESTMENT SECURITIES
SOLD (181,035)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,076,249
==========
See notes to financial statements.
20
BANK INVESTMENT FUND-LIQUIDITY FUND
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31,
-------------------------------
2004 2003
---- ----
<s> <c> <c>
INCREASE IN NET ASSETS FROM OPERATIONS:
Investment income-net $ 3,257,284 $ 7,491,592
Realized net loss on investment securities sold (181,035) -
------------- -------------
NET INCREASE IN NET ASSETS RESULTING IN
OPERATIONS: 3,076,249 7,491,592
DIVIDENDS TO SHAREHOLDERS FROM:
Investment income-net (3,076,249) (7,491,592)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST-
NET DECREASE (246,006,495) (407,689,880)
------------- -------------
TOTAL DECREASE IN NET ASSETS (246,006,495) (407,689,880)
NET ASSETS:
Beginning of year 401,193,086 808,882,966
------------- -------------
End of year $ 155,186,591 $ 401,193,086
============= =============
See notes to financial statements.
21
BANK INVESTMENT FUND-LIQUIDITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 2004
Obligations of Federal Agencies-1.6%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
Federal Home Loan Bank $ 2,500,000 4.125% 01/14/05 $ 2,502,100
----------- ------------
(Value $ 2,514,063)
Certificates of Deposit-2.7%
Bank of Fall River,
a Cooperative Bank $ 500,000 2.25% 01/10/05 $ 500,000
Fidelity Cooperative Bank 500,000 2.25 01/19/05 500,000
Lowell Cooperative Bank 200,000 1.98 03/23/05 200,000
Mt. Washington Cooperative Bank 450,000 2.25 01/04/05 450,000
Mt. Washington Cooperative Bank 300,000 2.25 02/22/05 300,000
Mt. Washington Cooperative Bank 600,000 2.50 04/04/05 600,000
NCB, FSB 1,500,000 2.25 01/18/05 1,500,000
NCB, FSB 100,000 1.90 04/04/05 100,000
----------- ------------
$ 4,150,000 (Value $ 4,150,000) $ 4,150,000
----------- ------------
Commercial Paper-3.2%
Merrill Lynch & Co., Inc. $ 5,000,000 2.28%* 01/24/05 $ 4,992,400
----------- ------------
(Value $ 4,992,400)
Short-Term Corporate Bonds and Notes-4.5%
Associates Corp. of N.A. $ 7,000,000 7.75% 02/15/05 $ 7,056,217
----------- ------------
(Value $ 7,038,934)
<FN>
- --------------------
* Annualized yield on date of purchase.
</FN>
See notes to financial statements.
22
BANK INVESTMENT FUND-LIQUIDITY FUND
PORTFOLIO OF INVESTMENTS (continued)
December 31, 2004
Federal Funds Sold-7.9%
Par Coupon Maturity Date Value
--- ------ ------------- -----
<s> <c> <c> <c> <c>
Bank of America, N.A. $ 6,141,418 2.21% 01/03/05 $ 6,141,418
Eastern Bank, N.A. 6,044,676 2.25 01/03/05 6,044,676
----------- ------------
$12,186,094 (Value $ 12,186,094) $ 12,186,094
=========== ============
Money Market Deposits-3.2%
NCB, FSB $ 5,000,000 2.00% 01/03/05 $ 5,000,000
----------- ------------
(Value $ 5,000,000)
(Value $ 35,881,491) $ 35,886,811
------------
Repurchase Agreement-76.5%
$118,650,000 Repurchase Agreement dated December 31, 2004 with Morgan
Stanley Dean Witter, Inc. due January 3, 2005 with respect to
various U.S. Governments ranging from:
Par Value $1,000-$51,615,000-Totaling $257,448,614
Rate Range 1.80%-15.00%
Maturity Range 01/05/2005-12/01/2034
Maturity value of $118,671,258 for an effective yield of 2.15%.
(Value $118,650,000) $118,650,000
------------
Total Investments-99.6% (Value $154,531,491) $154,536,811
------------
Other assets in excess of liabilities-0.4% 649,780
------------
Net assets-100.0% $155,186,591
============
See notes to financial statements.
23
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Organization:
The Bank Investment Fund (the "Corporation") was organized effective
April 7, 1985 pursuant to a Special Act of the Commonwealth of
Massachusetts (Acts of 1984, Chapter 482, as amended,) under the chartered
name "Co-operative Bank Investment Fund" and does business under the name
"Bank Investment Fund." The Corporation is registered with the Securities
and Exchange Commission under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
Corporation invests and manages two mutual funds derived from the voluntary
subscriptions made by eligible banks.
Liquidity Fund (the "Fund") is a no-load, diversified, open-end money
market fund, which commenced operations on October 12, 1988. Fund shares
are currently offered to the following eligible investors: Massachusetts
Co-operative Banks, Massachusetts Savings Banks, Massachusetts Trust
Companies, Federally Chartered Savings Banks and Savings and Loan
Associations with their principal place of business in Massachusetts, The
Co-operative Central Bank Reserve Fund, The Savings Bank Life Insurance
Company of Massachusetts and the National Cooperative Bank.
Because more than one fund will be operated by the Corporation,
operating expenses related directly to a single fund operation will be
charged directly to that fund. Common or indirect expenses will be
allocated among funds in proportion to the ratio of the net assets of each
fund to total net assets of the Corporation or on such other basis as the
Board of Directors of the Corporation may determine from time to time to be
fair and equitable.
NOTE 2. Significant Accounting Policies:
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which require the use of
management estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.
Accounting for investments:
Security transactions are accounted for on the trade date (date the
order to buy or sell is executed). The Fund's investment securities are
carried at their amortized cost, which does not take into account
unrealized appreciation or depreciation. Interest income is accrued on all
debt securities on a daily basis and includes accretion of original issue
discount. Premiums, if any, and discounts are amortized or accreted on a
straight line basis, which approximates the income method.
24
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
Repurchase agreements:
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying investments to ensure the existence of a proper level of
collateral.
Federal income taxes:
The Corporation's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is generally required.
In 2004, the Fund incurred a federal income tax liability of $53,854
on $181,035 of undistributed income resulting from the non deductibility of
$181,035 in security losses on portfolio repositioning. The resulting loss
carry forward of $181,035 will expire on December 31, 2012. A corporate
officer voluntarily contributed $53,854 to the Fund in order for the Fund
to pay this federal income tax expense without either reducing the per
share distribution for December 2004 or reducing the per share net asset
value below $1,000.
Dividends to shareholders:
The Fund distributes all of its net investment income on a daily
basis. Dividends are declared on each day that the Fund is open for
business. Investors receive dividends in additional shares unless they
elect to receive cash. Payment is made in additional shares at the net
asset value on the payable date or in cash, on a monthly basis.
Distributions of realized net capital gains, if any, are declared and paid
once each year and are reinvested in additional shares at net asset value
or, at each shareholder's option, paid in cash.
The short-term capital losses recorded in connection with the
portfolio repositioning in November 2004 resulted in undistributed taxable
income of $181,035.
25
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 2. Significant Accounting Policies (continued):
Net asset value:
The net asset value per share is determined daily by dividing the
value of all investment securities and all other assets, less liabilities,
by the number of shares outstanding. The Fund has established procedures
reasonably designed to stabilize the net asset value per share at $1,000.
NOTE 3. Shares of Beneficial Interest:
Chapter 482 of the Acts of 1984, as amended by Chapter 244, Acts of
1986, of the Commonwealth of Massachusetts permits the directors to issue
an unlimited number of full and fractional shares of beneficial interest
(no par, non-voting, with a stated value of $1,000 per share).
Transactions in shares of beneficial interest are summarized as
follows:
Year Ended Year Ended
December 31, 2004 December 31, 2003
-------------------------------- --------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<s> <c> <c> <c> <c>
Sold 1,355,157.9629 $1,355,157,963 2,875,965.4073 $2,875,965,407
Issued in reinvestment
of dividends 2,087.7331 2,087,733 4,827.0807 4,827,081
-------------- -------------- -------------- --------------
1,357,245.6960 1,357,245,696 2,880,792.4880 2,880,792,488
Redeemed 1,603,252.1914 1,603,252,191 3,288,482.3685 3,288,482,368
-------------- -------------- -------------- --------------
Net decrease (246,006.4954) $ (246,006,495) (407,689.8805) $ (407,689,880)
============== ============== ============== ==============
NOTE 4. Distribution Expenses:
The Fund has adopted a Plan of Distribution (the "Plan"), pursuant to
rule 12b-1 under the Investment Company Act of 1940, to use the assets of
the Fund to finance certain activities relating to the distribution of its
shares to investors. The Plan authorizes the Fund to pay for the cost of
preparing, printing, and distributing offering circulars to prospective
investors, for certain other direct or indirect marketing expenses, direct
payments to sales personnel, and for the cost of implementing and operating
the Plan. Plan expenses may not exceed an amount computed at an annual rate
of .12 of 1% of the Fund's average daily net assets. The Fund paid or
accrued $33,559 (.01% of average net assets) pursuant to this Plan for the
year ended December 31, 2004.
26
BANK INVESTMENT FUND-LIQUIDITY FUND
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 5. Pension Plans:
The Fund is a participating employer in the Co-operative Banks
Employees Retirement Association, and has, in effect, a Defined
Contribution Plan covering all eligible officers and employees. Under the
plan, contributions by employees are doubled by the Fund, up to a maximum
of 10% of each employee's salary. Effective January 1, 1989, the Fund also
participates in a Defined Benefit Plan, which covers all eligible
employees, and is funded currently. The Fund's contributions to these
multi-employer plans for the year ended December 31, 2004 was $32,033.
NOTE 6. Transactions With Related Parties:
The Incorporators of the Corporation are the Directors of The Co-
operative Central Bank, which is the statutory reserve bank and insurer of
deposits in excess of Federal deposits insurance limitations for
Massachusetts co-operative banks. The Board of Directors of the Corporation
is elected by the Incorporators.
The Fund accrued or paid the Bank Investment Fund-Fund One $173,900
for the year ended December 31, 2004 as a net reimbursement for the
proportionate share of expense items used in common by both funds. All fees
and expenses for the Fund are estimated and accrued daily. Actual operating
expenses for the year ended December 31, 2004 were .17% of average net
assets.
In 2004, the Fund incurred a federal income tax liability of $53,854
on $181,035 of undistributed income resulting from the non deductibility of
$181,035 in security losses on portfolio repositioning. A corporate officer
voluntarily contributed $53,854 to the Fund in order for the Fund to pay
this federal income tax expense without either reducing the per share
distribution for December 2004 or reducing the per share net asset value
below $1,000.
27
The following sheets are perforated for your removal
and use in the establishment or updating of your account.
28
BANK INVESTMENT FUND
LIQUIDITY FUND
ACCOUNT APPLICATION FORM
REGISTRATION. The account should be registered as follows:
DATE: ____________
NAME: _____________________________________________________________________
POST OFFICE BOX: __________________________________________________________
STREET ADDRESS: ___________________________________________________________
CITY/TOWN: ______________________________________ STATE: __________________
ZIP CODE: ____________________________ TELEPHONE NUMBER: __________________
TAX ID NUMBER _____________________________________________________________
FAX NUMBER:_____________________________ E-MAIL ADDRESS: __________________
INITIAL INVESTMENT: $____________________________________ (Minimum $50,000)
MONTHLY CASH DIVIDENDS
[ ] Check if dividends are to be paid monthly in cash. Otherwise
dividends will be AUTOMATICALLY REINVESTED in additional shares of
the Fund.
TELEPHONE REDEMPTION ORDERS
Redemption proceeds will be sent ONLY to the bank or trust company
listed below, for credit to the investor's account. The investor hereby
authorizes the BANK INVESTMENT FUND to honor telephone or written
instructions, without a signature guarantee, for redemption of Fund shares.
THE FUND and its Agents will not be liable for any loss, expense or cost
arising out of such transactions.
Enclose a specimen copy of your check or deposit slip (marked VOID)
for the bank account listed below. To facilitate the wiring of your
redemption proceeds the indicated bank should be a commercial bank.
Name of Bank: _____________________________________________________________
Bank Account No.: _________________________________________________________
Bank Address: _____________________________________________________________
street
_______________________________________________ MA __________
city zip
Name on Account: __________________________________________________________
Bank Routing/Transit No.: _________________________________________________
AUTHORIZED PERSONS-TELEPHONE INVESTMENTS AND REDEMPTIONS
Authorized person Title Initials
----------------- ----- --------
1. ________________________________________________________________________
2. ________________________________________________________________________
3. ________________________________________________________________________
4. ________________________________________________________________________
5. ________________________________________________________________________
29
CORPORATE RESOLUTIONS
We have enclosed with this application form the necessary corporate
resolutions to authorize corporate officers to make wire or cash payment
transfers to the Bank Investment Fund and to purchase, sell or exchange
shares of beneficial ownership in the Bank Investment Fund.
SIGNATURE AND CERTIFICATION
We have received and read the Offering Circular, and agree to its
terms and conditions by signing below. By the execution of this
Application, the undersigned represent and warrant that they are duly
authorized to sign this Application and to purchase or redeem shares of the
Fund on behalf of the investor.
The undersigned hereby certify under penalty of perjury that the
above Taxpayer Identification Number is correct and that the investor is
not subject to backup withholding.
We further certify and agree that the certifications, authorizations
and appointments in this document will continue until the Bank Investment
Fund receives actual written notice of any change thereof.
Signature _____________________________ Title _____________________________
Signature _____________________________ Title _____________________________
Two signatures are required, one of which should be the Secretary or Clerk
of the corporation.
SIGNATURE GUARANTEE
In order to facilitate telephone redemptions, you must have your
signature(s) on this application guaranteed by a commercial bank or stock
exchange member firm.
___________________________________________________________________________
Name of Bank or Investment Dealer
___________________________________________________________________________
By (signature of authorized person)
___________________________________________________________________________
Title (authorized person)
___________________________________________________________________________
30
CERTIFICATE OF CORPORATE RESOLUTION
For Massachusetts Co-operative Banks, Massachusetts Savings Banks,
Massachusetts Trust Companies, Federally Chartered Savings Banks and
Savings and Loan Associations with their principal place of business in
Massachusetts, The Co-operative Central Bank Reserve Fund, The Savings Bank
Life Insurance Company of Massachusetts and the National Cooperative Bank
only. This form authorizes the individuals below to redeem shares by
telephone or exchange.
The undersigned is Secretary or Clerk of _________________ and hereby
certifies that the following individuals: (name of corporation)
Name Title
---- -----
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
are duly authorized by corporate resolution or otherwise to act on behalf
of the eligible bank in connection with its ownership of shares in the Bank
Investment Fund, Liquidity Fund and in particular to give instructions for
the purchase, sale or exchange of any said shares and to execute any
necessary forms in connection therewith.
The Bank Investment Fund will consider this authorization to be in
full force and in effect until otherwise notified in writing.
IN WITNESS WHEREOF, the undersigned has executed this Certificate the
_______________ day of
___________________ 20__________.
___________________________________________________________________________
Secretary or Clerk
31
NOTES
32
FINANCIAL STATEMENTS
As required by applicable statutes, semi-annual financial statements
are furnished to the shareholder, the Commissioner of Banks and the
Securities and Exchange Commission.
ADDITIONAL INFORMATION
The Bank Investment Fund (the "Corporation") has filed with the
Securities and Exchange Commission in Washington, D.C., under the chartered
name the "Co-operative Bank Investment Fund" a registration statement on
Form N-1A (together with all amendments and exhibits thereto, hereinafter
referred to as the "Registration Statement") under the Investment Company
Act of 1940. This Offering Circular does not contain all of the information
in the Registration Statement. The Corporation has also filed a complete
schedule of portfolio holdings Form N-Q with the Securities and Exchange
Commission. The Registration Statement may be reviewed and copied at the
Public Reference Room of the Securities and Exchange Commission; or:
By Phone: 1-800-Sec-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, D.C. 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
(Investment Company Act File No. 811-4421)
The Corporation will provide, without charge to any person to whom
this Offering Circular is delivered on the written or oral request of any
such person, a copy of the Registration Statement and the additional
information contained therein and documents relating to certain exemptions
from the Investment Company Act of 1940 (see ORGANIZATION). Written
requests should be directed to the Bank Investment Fund, 75 Park Plaza,
Boston, MA 02116-3934. Telephone requests may be directed collect to 617-
695-0415.
==================================
BANK INVESTMENT FUND
LIQUIDITY FUND
[LOGO]
75 Park Plaza
Boston, MA 02116-3934
617-695-0415
Web: www.bankinvestmentfund.com
E-mail: bif@bankinvestmentfund.com
==================================
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Section 5.2 of the Registrant's Declaration of Trust provides that the
Trust shall indemnify each of its Trustees, officers, employees, and agents
against all liabilities and expenses reasonably incurred by him or her in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he or she may be involved or
with which he or she may be threatened, while in office or thereafter, by reason
of his or her being or having been such a Trustee, officer, employee or agent,
except with respect to any matter as to which he or she shall have been
adjudicated to have acted in bad faith, willful misfeasance, gross negligence or
reckless disregard of his or her duties.
The foregoing indemnification arrangements are subject to the
provisions of Sections 17(h) and (i) of the Investment Company Act of 1940.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant maintains an insurance policy which insures its
directors and officers against certain liabilities.
ITEM 16. EXHIBITS
(1) (a) Amended and Restated Declaration of Trust dated
August 10, 2005.(11)/
(b) Certificate of Trust filed July 23, 1999. (3)/
(2) Amended and Restated By-Laws.(10)/
(3) Not Applicable.
(4) Form of Agreement and Plan of Reorganization.*
(5) Not Applicable.
(6) (a) Investment Advisory Agreement dated December 8, 1997
between Registrant and Shay Assets Management, Inc.
(2)/
(b) Form of Assignment of the Investment Advisory
Contract dated September 30, 1999. (4)/
C-1
(c) Investment Advisory Agreement with respect to the
Ultra Short Portfolio. (7)/
(7) (a) Distribution Agreement. (1)/
(b) Distribution Agreement dated December 8, 1997 between
Registrant and Shay Financial Services, Inc. (2)/
(c) Form of Assignment of the Distribution Agreement
dated September 30, 1999. (4)/
(8) Not Applicable.
(9) (a) Custody Agreement dated July 30, 1999. (3)/
(b) Form of Cash Management and Related Services
Agreement between Registrant and the Bank of New
York. (3)/
(c) Form of Assignment of Custodian Contract dated
September 30, 1999. (4)/
(10) (a) Amended and Restated 12b-1 Plan dated July 22, 1999,
as amended October 18, 2001. (5)/
(b) Multi-Class Plan dated July 22, 1999. (3)/
(11) Opinion and consent of Vedder, Price, Kaufman & Kammholz,
P.C.(11)/
(12) Form of opinions of Kirkpatrick & Lockhart Nicholson Graham
LLP supporting the tax matters and consequences to
shareholders discussed in the Information
Statement/Prospectus.(11)/
(13) (a) Transfer Agency Agreement between Registrant and
BISYS Fund Services Ohio, Inc. dated August 1, 2004.
(9)/
(b) Administration Agreement between Registrant and BISYS
Fund Services Ohio, Inc. dated August 1, 2004. (9)/
(c) Fund Accounting Agreement between Registrant and
BISYS Fund Services Ohio, Inc. dated August 1, 2004.
(9)/
(d) Omnibus Fee Agreement between Registrant and BISYS
Fund Services Ohio, Inc. dated August 1, 2004. (9)/
(e) Compliance Services Agreement between Registrant and
BISYS Fund Services Ohio, Inc. dated October 1, 2004.
(8)/
(14) (a) Consent of PricewaterhouseCoopers, LLP.*
(b) Consent of Parent, McLaughlin & Nangle.*
(15) Not Applicable.
(16) Limited Power of Attorney dated July 21, 2005.(10)/
(17) (a) Form of Administrative Service Agreement.*(11)/
C-2
(17) (b) Form of Non-Compete Agreement.*(11)/
(1)/ Previously filed with Post-Effective Amendment No. 27 to Registrant's
registration statement on Form N-1A on or about December 30, 1996 and
incorporated herein by reference.
(2)/ Previously filed with Post-Effective Amendment No. 28 to Registrant's
registration statement on Form N-1A on or about December 29, 1997 and
incorporated herein by reference.
(3)/ Previously filed with Post-Effective Amendment No. 34 to Registrant's
registration statement on Form N-1A on or about October 22, 1999 and
incorporated herein by reference.
(4)/ Previously filed with Post-Effective Amendment No. 37 to Registrant's
registration statement on Form N-1A on or about December 28, 2000 and
incorporated herein by reference.
(5)/ Previously filed with Post-Effective Amendment No. 39 to Registrant's
registration statement on Form N-1A on or about October 29, 2001 and
incorporated herein by reference.
(6)/ Previously filed with Post-Effective Amendment No. 41 to Registrant's
registration statement on Form N-1A on or about January 29, 2002 and
incorporated herein by reference.
(7)/ Previously filed with Post-Effective Amendment No. 42 to Registrant's
registration statement on Form N-1A on or about February 26, 2003 and
incorporated herein by reference.
(8)/ Previously filed with Post-Effective Amendment No. 44 to Registrant's
registration statement on Form N-1A on or about December 29, 2004 and
incorporated herein by reference.
(9)/ Previously filed with Post-Effective Amendment No. 45 to Registrant's
registration statement on Form N-1A on or about February 25, 2005 and
incorporated herein by reference.
(10)/ Previously filed with Registrant's registration statement on Form N-14
on or about July 22, 2005 and incorporated herein by reference.
(11)/ Previously filed with Registrant's registration statement on Form N-14
on or about August 22, 2005 and incorporated herein by reference.
* Filed herewith.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) under the Securities Act of
1933, the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
C-3
SIGNATURES
As required by the Securities Act of 1933, this registration statement
has been signed on behalf of the Registrant, in the City of Chicago and State of
Illinois, on the 25th day of August, 2005.
ASSET MANAGEMENT FUND
By: /s/ Robert T. Podraza
-------------------------------------
Robert T. Podraza, Vice President
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
/s/ Rodger D. Shay* Trustee and Chairman of the Board
- -----------------------------------------------------
Rodger D Shay
/s/ Robert T. Podraza Vice President August 25, 2005
- -----------------------------------------------------
Robert T. Podraza
/s/ Richard M. Amis* Trustee
- -----------------------------------------------------
Richard M. Amis
/s/ David F. Holland* Trustee
- -----------------------------------------------------
David F. Holland
/s/ Gerald J. Levy* Trustee and Vice Chairman of the
- ----------------------------------------------------- Board
Gerald J. Levy
/s/ William A. McKenna, Jr.* Trustee
- -----------------------------------------------------
William A. McKenna, Jr.
/s/ Christopher M. Owen * Trustee
- -----------------------------------------------------
Christopher M. Owen
/s/ Maria F. Ramirez * Trustee
- -----------------------------------------------------
Maria F. Ramirez
/s/ Rodger D. Shay, Jr.* Trustee
- -----------------------------------------------------
Rodger D. Shay, Jr.
/s/ Trent M. Statczar Treasurer (principal financial and August 25, 2005
- ----------------------------------------------------- accounting officer)
Trent M. Statczar
/s/ Daniel K. Ellenwood
- -----------------------------------------------------
*Daniel K. Ellenwood
Attorney-In-Fact
August 25, 2005
*Original power of attorney authorizing Rodger D. Shay, Ed E. Sammons, Jr. and
Daniel K. Ellenwood to execute this registration statement, and amendments
thereto, for each of the trustees of the Registrant on whose behalf this
registration statement is filed, has been executed and was previously filed as
an exhibit to the Registration Statement on Form N-14 on or about July 22, 2005.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
14(a) Consent of PricewaterhouseCoopers, LLP
14(b) Consent of Parent, McLaughlin & Nangle