-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uk7bwF0ikWDcN043ez9rwpvKk5/Pm9JhaxucT+yMsmN35K/ZRP+i5zg2lEtx5l4A 4uJ9TCS41KkMJJlF8d9bpg== 0001036050-98-000625.txt : 19980417 0001036050-98-000625.hdr.sgml : 19980417 ACCESSION NUMBER: 0001036050-98-000625 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19980416 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMOTHY PLAN CENTRAL INDEX KEY: 0000916490 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 597016828 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-73248 FILM NUMBER: 98595809 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-08228 FILM NUMBER: 98595810 BUSINESS ADDRESS: STREET 1: 1304 W FAIRBANKS AVE CITY: WINTER PARK STATE: FL ZIP: 32789 BUSINESS PHONE: 4076441986 MAIL ADDRESS: STREET 1: 1304 W FAIRBANKS AVE CITY: WINTER PARK STATE: FL ZIP: 32789 485APOS 1 THE TIMOTHY PLAN FORM N-1A UNITED STATES FILE NO. 33-73248 SECURITIES AND EXCHANGE COMMISSION ------------------ WASHINGTON, D.C. 20549 FILE NO. 811-8228 FORM N-1A ------------------ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_] Pre-Effective Amendment No. _______ [_] Post Effective Amendment No. 8 [X] _______ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] Amendment No. 9 [X] _______ THE TIMOTHY PLAN ================ (Exact name of Registrant as Specified in Charter) 1304 West Fairbanks Avenue Winter Park, Florida 32789 - -------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code 407-644-1986 ------------ Arthur D. Ally, President The Timothy Plan 1304 West Fairbanks Avenue Winter Park, FL 32789 ------------------------------ (Name and Address of Agent for Service) COPIES TO: Dottie Allison, Esq. Pepper Hamilton LLP 3000 Two Logan Square 18th & Arch Streets Philadelphia, PA 19103 APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICAL AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE: [X] ON APRIl 16, 1998 PURSUANT TO PARAGRAPH (A)(1). ================================================================================ As filed with the U.S. Securities and Exchange Commission on April 16, 1998 CROSS REFERENCE SHEET Pursuant to Rule 481(a)
Part A Item No. Prospectus Caption - -------- ------------------ 1. Cover Page............................... Cover Page 2. Synopsis................................. Prospectus Summary Expenses of the Fund 3. Financial Highlights..................... Financial Highlights 4. General Description of Registrant........ Prospectus Cover, Investment Objective and Policies, Risk Factors and Investment Restrictions 5. Management of the Fund................... Board of Trustees, Investment Adviser, Investment Manager, Historical Performance of the Investment Manager, Underwriter, Administrator, Custodian, Transfer Agent, Fund Accounting/Pricing Agent, Distribution of Shares, and Expenses 6. Capital Stock and Other Securities....... Shares of Beneficial Interest, Dividends, Distributions and Taxes 7. Purchase of Shares Being Offered......... Alternative Purchase Plan, Determination of Net Asset Value, How to Purchase Shares, Retirement Plans 8. Redemption or Repurchase................. How to Redeem Fund Shares 9. Pending Legal Proceedings................ Inapplicable Part B Statement of Additional Item No. Information Caption - --------- ----------------------- 10. Cover Page............................... Cover Page 11. Table of Contents........................ Table of Contents 12. General Information and History.......... N/A 13. Investment Objective and Policies........ Cover, The Timothy Plan- Investments, Investment Restrictions 14. Management of the Fund................... Officers an Trustees of the Fund 15. Control Persons and Principal Holders of Securities.................... Miscellaneous 16. Investment Advisory and Other Services................................. Investment Advisor, Investment Manager, Underwriter and Administrator 17. Brokerage Allocation..................... Allocation of Portfolio Brokerage 18. Capital Stock and Other Securities....... N/A 19. Purchase, Redemption and Pricing
Page 2 of Securities Being Offered.............. Purchase of Shares 20. Tax Status............................... N/A 21. Underwriters............................. Underwriters, Purchase of Shares, Distribution Plan 22. Calculation of Performance Data.......... Performance Calculations 23. Financial Statements..................... Audited Financial Statements
PART C - ------ Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of this Post-Effective Amendment No. 7 to the Registration Statement. Page 3 PROSPECTUS FOR THE TIMOTHY PLAN CLASS A SHARES CLASS B SHARES MAY 1, 1998 - -------------------------------------------------------------------------------- Distributed By: Timothy Partners, Ltd. 1304 West Fairbanks Avenue Winter Park, Florida 32789 (800) 846-7526 - -------------------------------------------------------------------------------- THE TIMOTHY PLAN (the "Trust") is an open-end diversified management investment company. The Trust was organized as a series Delaware business trust and currently offers shares of two series, designed to offer investors investment opportunities that best meet their needs. This Prospectus pertains only to The Timothy Plan series (the "Fund") of the Trust. The primary objective of the Fund is long-term capital growth and the secondary objective is current income. The Fund seeks to achieve its objectives by investing in securities issued by companies which, in the opinion of the Fund's advisor, conduct business in accordance with the stated philosophy and principles of the Fund (See "Investment Objectives and Policies"). There is no assurance that the Fund's objectives will be achieved. The Fund currently offers two classes of shares: "CLASS A" shares (formerly, Institutional Class) and "CLASS B" shares (formerly, Retail Class) (collectively, the "Classes"). CLASS A shares may be purchased at the net asset value per share, plus any applicable front-end sales charge. (See "Purchasing Class A Shares" under "Alternative Purchase Plan"). CLASS B shares may be purchased at the net asset value per share without an initial sales charge, but are subject to a contingent deferred sales charge ("CDSC"), which may be imposed on redemptions made within five years of purchase. (See "Purchasing Class B Shares" under "Alternative Purchase Plan"). Both Classes of shares are subject to different 12b-1 Plan expenses. (See "Plans of Distribution" under "Management of Funds"). These alternatives permit an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other circumstances. (See "Factors to Consider in Choosing a Class of Shares" under "Alternative Purchase Plan"). This Prospectus sets forth concisely the information about the Fund that a prospective investor should know before investing in the Fund. Investors should read and retain this Prospectus for future reference. More information about the Fund and Classes of shares of the Fund has been filed with the U.S. Securities and Exchange Commission, and is contained in the "Statement of Additional Information" dated May 1, 1998, as amended from time to time, which is available at no charge upon request to the Fund. The Fund's Statement of Additional Information is incorporated herein by reference. The Statement of Additional Information, material incorporated by reference into this Prospectus, and other information regarding the Fund are maintained electronically with the U.S. Securities and Exchange Commission at its Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR HAS THE U.S. SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Visit The Timothy Plan web site on the Internet at: WWW.TIMOTHYPLAN.COM Page 4 TABLE OF CONTENTS
PAGE Prospectus Summary.................................................... Expenses of the Fund.................................................. Financial Highlights.................................................. The Fund.............................................................. Investment Objectives and Policies.................................... Risk Factors.......................................................... Investment Restrictions............................................... Management of the Fund................................................ Alternative Purchase Plan............................................. How to Purchase Shares................................................ How to Redeem Shares.................................................. Retirement Plans...................................................... Shares of Beneficial Interest......................................... Dividends, Distributions and Taxes.................................... Determination of Net Asset Value...................................... Performance........................................................... Investment Application................................................ Automatic Investment Plan Application................................. Application to Request to Transfer to The Timothy Plan................
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE SUCH AN OFFER OR SOLICITATION. NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. Page 5 PROSPECTUS SUMMARY ================================================================================ THE FUND THE TIMOTHY PLAN (the "Fund") is a separate series of The Timothy Plan (the "Trust"), an open-end, diversified management investment company established as a series Delaware business trust. MINIMUM There is a minimum $1,000 initial investment for each Class of PURCHASE shares. There is no minimum investment requirement for subsequent investments or for qualified retirement plans. INVESTMENT The primary objective of the Fund is long-term capital growth OBJECTIVES and the secondary objective is current income. The Fund seeks to achieve its objectives while abiding by the ethical standards established for investments by the Fund. As with any mutual fund, there is no assurance that the Fund will achieve its objectives. INVESTMENT The Fund invests in securities issued by companies which, in POLICY the opinion of the Fund's advisor, conduct business in This policy precludes the investment in securities of companies involved in the businesses of alcohol production, tobacco production, or casino gambling, or which are directly or indirectly involved in pornography or abortion. The securities in which the Fund shall be precluded from investing, by virtue of the Fund's ethical standards, are referred to as the "Excluded Securities." INVESTMENT Timothy Partners, Ltd. ("TPL") is the Fund's investment ADVISOR advisor and Awad & Associates, a division of Raymond & James, Inc. (the "Investment Manager"), is the Fund's investment manager. DISTRIBUTOR TPL is also the distributor and underwriter of the Fund's shares. ALTERNATIVE The Fund offers two classes of shares: CLASS A shares and CLASS PURCHASE B shares. Each Class has its own sales charge structure. PLAN Investors may choose the Class of shares that best suits their investment objectives. Each Class of shares represents an interest in the same portfolio of investments of the Fund. CLASS A SHARES. CLASS A shares are offered at net asset value per share plus a maximum initial sales charge of 5.50% of the offering price, reduced on investments of $25,000 or more. CLASS A shares are subject to an annual 12b-1 distribution and service fee of up to 0.25% of the Fund's average daily net assets of the attributable CLASS A shares. CLASS B SHARES. CLASS B shares are offered at net asset value per share and are subject to a maximum contingent deferred sales charge of 5.00% of redemption proceeds on redemptions made within the first year after purchase and declining thereafter to 0.00% after the fifth year. CLASS B shares are subject to a combined annual distribution fee and service fee of up to 1.00% of the Fund's average daily net assets attributable to CLASS B shares. CLASS B shares will automatically convert to CLASS A shares once the economic equivalent of a 5.50% sales charge is recovered through the distribution fee. (See "Conversion Feature" under "Alternative Purchase Plan"). The above information is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Prospectus. Page 6 EXPENSES OF THE FUND The following table illustrates all expenses and fees that a shareholder of the Fund's CLASS A and CLASS B will incur. SHAREHOLDER TRANSACTION EXPENSES
CLASS A CLASS B ------- ------- Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................... 5.50%/1/ none Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)...................................................... none none Redemption Fees............................................................................... none/2/ none/2/ Contingent Deferred Sales Charge (CDSC)/3/.................................................... none * (as a percentage of the lesser of original purchase price or redemption proceeds)
* A CDSC is imposed on CLASS B shares purchased on or after September 26, 1997 at the following declining rates:
REDEMPTION WITHIN PERCENTAGE - ----------------- ---------- First Year............................. 5.0% Second Year............................ 4.0% Third Year............................. 3.0% Fourth Year............................ 2.0% Fifth Year............................. 1.0% Sixth Year and thereafter.............. None
/1/ CLASS A shareholders who purchased shares on or before September 22, 1997 are not subject to the front-end sales load on future purchases. No charge is assessed on shares derived from reinvestment of dividends or capital gains distributions. The front-end sales load is reduced for purchases of $25,000 and over. See "Purchasing Class A Shares" under "Alternative Purchase Plan". /2/ UMB Bank KC NA charges $9.00 per redemption for redemptions remitted by wire. There may be fees for redemptions made through broker\dealers, financial institutions and others. /3/ CLASS B shareholders who purchased shares on or before September 22, 1997 are not subject to the CDSC upon redemption of such shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
CLASS A CLASS B -------- -------- Management and Advisory Expenses After Expense Reimbursements*... 0.00% 0.00% 12b-1 Fees 1..................................................... 0.25% 1.00%/2/ Other Expenses After Expense Reimbursements...................... 1.35% 1.35% ----- ------ Total Operating Costs After Expense Reimbursements............... 1.60% 2.35%
* The purpose of this table is to assist the investor in understanding the various expenses that an investor in the Fund will bear directly or indirectly. TPL has voluntarily agreed to waive its fees and reimburse the Fund for its other expenses, so that the total annual operating expenses of CLASS A and CLASS B will not exceed 1.60% and 2.35%, respectively, of each Class' respective average daily net assets. Prior to September 22, 1997, TPL had voluntarily agreed to waive its management fees and reimburse expenses so that CLASS B'S (the former "Retail Class") total annual operating expenses would not exceed 2.20%. CLASS B'S expense information is restated to reflect current fees. Absent any fee waiver and expense reimbursements, "Management and Advisory Expenses " would have been 0.85% for each Class of shares and "Other Expenses " for CLASS A shares would have been 2.75% and for CLASS B shares would have been 3.41%. Page 7 Example The following example illustrates the expenses that an investor in either Class would have directly or indirectly paid on a $1,000 investment in the Fund at the end of the periods presented assuming a 5% annual rate of return.
1 year 3 years 5 years 10 years ------ ------- ------- -------- (1) Assuming a complete redemption at end of period CLASS A $70* $103* $137* $235* CLASS B $74** $103** $136** $190 (2) Assuming no redemption CLASS A $70* $103* $137* $235* CLASS B $24 $73 $126 $190
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Fund issues two classes of shares that invest in the same portfolio of securities. Shareholders of CLASS A are subject to a front-end sales load and shareholders of CLASS B are subject to a CDSC. Each Class is subject to different 12b-1 Plan expenses; therefore, expenses and performance figures will vary between the Classes. - -------------------------------------------------------------------------------- 1 CLASS A shares and CLASS B shares are subject to an annual 12b-1 distribution and service fee of up to 0.25% and 1.00%, respectively, of the average daily net assets attributable to each Class of shares (of which, up to 0.25% may be used as a service fee). (See "Plans of Distribution" under "Management of Fund"). 2 Long-term holders of CLASS A and CLASS B shares may eventually pay more than the economic equivalent of the maximum front-end sales charges otherwise permitted by the Rules of Fair Practice of the National Association of Securities Dealers, Inc. * Assumes maximum front-end sales load. ** Assumes deduction of the applicable CDSC. Page 8 FINANCIAL HIGHLIGHTS The following financial highlights for each of the periods presented have been audited by Tait, Weller & Baker, independent auditors, whose unqualified report thereon appears in the Fund's Annual Report. The Annual Report, which is incorporated by reference into the Statement of Additional Information, contains additional performance information and is available upon request without charge. The table below sets forth financial data for one share of capital stock outstanding throughout each period presented.
CLASS A ---------------------------------------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 1994 /*/ ------------ ------------- ------------ ---------------- NET ASSET VALUE, BEGINNING OF PERIOD ........................ $ 11.24 $ 10.07 $ 9.66 $ 10.00 ------------ ----------- ---------- --------- Income From Investment Operations: Net investment income ...................................... 0.02 0.10 0.11 0.06 Net gains (losses) on securities (both realized and unrealized) .......................... 2.37 1.17 0.66 (0.34) ------------ ----------- ---------- --------- Total from investment operations ...................... 2.39 1.27 0.77 (0.28) ------------ ----------- ---------- --------- Less Distributions Distributions from net investment income: ............... 0.00 (0.10) (0.11) (0.06) Distributions from net capital gains: ................... (1.38) 0.00 (0.25) 0.00 ------------ ----------- ---------- --------- Total distributions .............................. (1.38) (0.10) (0.36) (0.06) ------------ ----------- ---------- --------- NET ASSET VALUE, END OF PERIOD .............................. $ 12.25 $ 11.24 $ 10.07 $ 9.66 ============ =========== ========== ========= TOTAL RETURN ................................................ 21.35%(1) 12.59% 7.93% (2.84%) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (in 000s) ........................ $ 11,208 $ 7,760 $ 6,133 $ 2,217 Ratio of expenses to average net assets: Before expense reimbursement .......................... 2.75% 3.70% 5.84% 18.62%/2/ After expense reimbursement ........................... 1.60% 1.60% 1.60% 1.60%/2/ Ratio of net investment income (loss) to average net assets: Before expense reimbursement .......................... (0.90%) (1.05%) (2.96%) (15.49%)/2/ After expense reimbursement ........................... 0.25% 1.05% 1.28% 1.53%/2/ Portfolio turnover rate .................................... 136.36% 93.08% 34.12% 8.31% Average commission rate paid ............................... $ 0.0580 $ 0.0593 N/R/3/ N/R/3/
/*/ Class A Shares commenced investment operations on March 21, 1994. /1/ Total return calculation does not reflect sales load. /2/ Annualized. /3/ Not Required. Page 9
Class B ------------------------------------------------ For the Year For the Year For the Period Ended Ended Ended December 31, December 31, December 31, 1997 1996 1995 * ------------- ------------ -------------- Net Asset Value, Beginning of Period ........ $ 11.22 $ 10.08 $ 10.49 ------------- ------------ -------------- Income From Investment Operations: Net investment income (loss) ............... (0.03) 0.07 0.11 Net gains (losses) on securities (both realized and unrealized) .......... 2.32 1.14 (0.16) ------------- ------------ -------------- Total from investment operations ...... 2.29 1.21 (0.05) ------------- ------------ -------------- Less Distributions Distributions from net investment income: 0.00 (0.07) (0.11) Distributions from net capital gains: (1.38) 0.00 (0.25) ------------- ------------ -------------- Total distributions .............. (1.38) (0.07) (0.36) ------------- ------------ -------------- Net Asset Value, End of Period .............. $ 12.13 $ 11.22 $ 10.08 ============= ============ ============= Total Return ................................ 20.50%/1/ 11.98%/1/ (0.46%)/1/ Ratios/Supplemental Data Net assets, end of period (in 000s) ........ $ 11,389 $ 3,929 $ 620 Ratio of expenses to average net assets: Before expense reimbursement .......... 3.41% 4.30% 6.44%/2/ After expense reimbursement ........... 2.26% 2.20% 2.20%/2/ Ratio of net investment income (loss) to average net assets: Before expense reimbursement .......... (1.56%) (1.65%) (3.56%)/2/ After expense reimbursement ........... (0.41%) 0.45% 0.68%/2/ Portfolio turnover rate .................... 136.36% 93.08% 34.12% Average commission rate paid ............... $ 0.0580 $ 0.0593 N/R/3/
* Class B Shares commenced investment operations on August 25, 1995. /1/ Total return calculation does not reflect redemption fee. /2/ Annualized. /3/ Not Required. Page 10 THE FUND THE TIMOTHY PLAN (the "Trust") is an open-end, diversified management investment company commonly known as a mutual fund. The Trust was established as a series Delaware business trust on December 16, 1993. The Trust currently offers two series of shares. This Prospectus pertains only to The Timothy Plan series, which offers two classes of shares: CLASS A and CLASS B. INVESTMENT OBJECTIVES AND POLICIES Set forth below are the investment objectives and policies of the Fund. The investment objectives of the Fund are considered fundamental policies and may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities. There can be no assurance that the Fund will achieve its objectives. The Fund's primary objective is long-term capital growth, with a secondary objective of current income. The Fund shall seek to achieve its objectives while abiding by ethical standards established for investments by the Fund. Those standards preclude the investment in securities of companies involved in the businesses of alcohol production, tobacco production, or casino gambling, or which are directly or indirectly involved in pornography or abortion. The securities in which the Fund shall be precluded from investing, by virtue of the Fund's ethical standards, are referred to as the "Excluded Securities." The Fund will invest most of its assets in common stocks and American Depository Receipts ("ADRs"), although it may also invest in other types of securities including securities convertible into common stocks and common stock equivalents (including rights and warrants), preferred stocks, short-term U.S. Government securities, and/or other high-quality, short-term debt securities (commercial paper, repurchase agreements, bankers' acceptances, certificates of deposit and other fixed income securities (non-convertible and convertible bonds, debentures and notes issued by U.S. corporations and certain bank obligations and participations). High-quality debt securities are those that are rated Aa or better by Moody's, or AA or better by Standard & Poor's, or that are of comparable quality. See "Risk Factors" herein, and the Statement of Additional Information for information relating to these securities. While it is the Fund's policy to seek long-term investments, changes will be made whenever management believes that such changes will strengthen the Fund's investments and realization of its objectives. The Fund will pursue its objectives by investing a major portion of its assets in securities of companies which offer prospects for growth of capital in accordance with the portfolio investment techniques described below. The Fund seeks to achieve its investment objectives by investing primarily in common stocks and ADRs, while foregoing investments in the Excluded Securities. Awad & Associates (the "Investment Manager"), a division of Raymond James & Associates, Inc., serves as sub-investment advisor to Timothy Partners, Ltd. ("TPL") and will select the investments for the Fund, but will not invest in securities which TPL determines are Excluded Securities. TPL has instructed the Investment Manager to avoid investment in any company directly involved in the business of alcohol production, tobacco production, or casino gambling. In addition, TPL will compile and maintain a list of companies that it determines, by using information gathered from its own proprietay research in addition to material published by three Christian ministries, participate directly or indirectly in either pornography or abortion. TPL will use its best judgment in determining which companies, through their corporate practices in either of these two areas, need to be placed on the Excluded Securities list. TPL also reserves the right to exercise its best judgment to exclude investment in other companies whose corporate practices may not fall within the exclusions described above, but nevertheless could be found offensive to basic traditional Judeo Christian values. The three Christian ministries that publish information that TPL will utilize in identifying companies directly or indirectly involved in pornography or abortion are as follows: (1) The American Family Association (to identify companies engaged in pornography); (2) Pro Vita Advisors (to identify companies that directly and indirectly participate in abortion); and (3) Life Decisions International (to identify companies that indirectly support abortion causes through corporate funding programs). TPL retains the right to change the ministries whose information it reviews, at its discretion. Page 11 After eliminating the Excluded Securities, the Investment Manager will construct a portfolio of investments to produce the highest possible risk-adjusted return on investment as is consistent with the Fund's objectives and policies. The Fund will invest primarily in a diversified portfolio of equity securities of companies whose market capitalizations exceed $200 million, and whose securities trade on the New York Stock Exchange ("NYSE"), the American Stock Exchange and the NASDAQ National Market System. Since the Fund is an equity fund, the Investment Manager seeks investments that show the greatest potential for growth, with income as a secondary factor. Therefore, these companies may or may not pay dividends. Potential equity investment candidates will be analyzed to determine their ability to repay all fixed debt obligations (including certain "off balance sheet debts" such as operating lease obligations and unfunded pension liabilities) from their historical level of net investment income within a reasonable time period, generally less than five years. Securities are typically sold when an appreciation objective is met. The Fund may invest up to 30% of its assets in cash or debt securities. Although the Investment Manager does not utilize a market timing strategy, if market conditions are viewed to require that the Fund take a temporary defensive position, the Fund may invest up to 100% of its assets in (i) debt securities issued by the U.S. Government, its agencies or instrumentalities, (ii) commercial paper, or (iii) certificates of deposit and bankers' acceptances with respect to any of the foregoing investments. The Fund may also invest in such securities pending the investment of the proceeds of certain sales of portfolio securities and at such other times when suitable equity securities are not available. It is impossible to predict whether, or for how long, the Fund will use any such temporary defensive strategies. TPL will attempt to monitor and respond to changes in business policies within the companies selected for investment. It is possible that securities in which the Fund has invested may become Excluded Securities. In such event, the Fund will sell its position in those securities subject to general market considerations. RISK FACTORS INVESTMENT RESTRICTIONS OF THE FUND. The ethical standards established for investments by the Fund limit the pool of securities from which investment securities may be selected by the Investment Manager. Although TPL believes the Fund's investment objective of long-term capital growth can be achieved notwithstanding the effect of the Fund's ethical standards, this objective may be affected by the limitations imposed by TPL, in eliminating the Excluded Securities as potential investments. ADVISOR AND INVESTMENT MANAGER. The principals of the managing general partner of TPL have been engaged in various aspects of the retail brokerage and financial advisory business for over 20 years. The Investment Manager has advised individuals, pension funds, trusts and institutions. Awad & Associates, a division of Raymond James & Associates, Inc., currently manages approximately $960 million in these accounts. The Investment Manager currently serves as co- investment advisor to two other investment companies: Heritage Series Trust: Heritage Small Cap Stock Fund and the Calvert New Visions Small Cap Fund. TPL has served as investment advisor exclusively to the Fund since the Fund's commencement of operations (March 21, 1994), but has not previously served as investment advisor to any other investment company. PORTFOLIO TURNOVER. It is anticipated that the annualized portfolio turnover rate for the Fund generally will not exceed a range of 50% to 75%, and may be lower than 50%, during most periods. High portfolio turnover involves additional transaction costs (such as brokerage commissions) which are borne by the Fund, and might involve adverse tax effects. (See "Dividends, Distributions and Taxes"). RISKS OF CERTAIN FIXED INCOME SECURITIES INTEREST BEARING DEBT INSTRUMENTS. The market value of interest-bearing debt securities, if and when held by the Fund, is affected by changes in interest rates. There is normally an inverse relationship between the market value of securities sensitive to prevailing interest rates and actual changes in interest rates; i.e., a decline in interest rates produces an increase in market value, while an increase in rates produces a decrease in market value. Moreover, the longer the remaining maturity of a security, the greater the effect of interest rate changes on the market value of such a security. In addition, changes in an issuer's ability to make payments of interest and principal and in the market's perception of an issuer's creditworthiness also affect the market value of the debt securities of that issuer. Page 12 MONEY MARKET SECURITIES. The Fund will select money market securities for investment when such securities offer a current market rate of return which the Fund considers reasonable in relation to the risk of the investment, and the issuer can satisfy suitable standards of creditworthiness set by the Fund. The money market securities in which the Fund may invest are repurchase agreements, certificates of deposit, U.S. Government securities, commercial paper and securities of money market mutual funds. Although the Fund intends to invest primarily in common stocks, common stock equivalents, and ADRs, the Fund may invest up to 30% of its assets directly in money market securities whenever deemed appropriate to achieve the Fund's investment objectives. It may invest without limitation in such securities on a temporary basis for defensive purposes. Securities issued or guaranteed as to principal and interest by the U.S. Government ("Government Securities") include a variety of Treasury securities, which differ in their interest rates, maturities and date of issue. Treasury bills have a maturity of one year or less; Treasury notes have maturities of one to ten years; Treasury bonds generally have a maturity of greater than five years. The Fund will only acquire Government Securities which are supported by the "full faith and credit" of the United States. Securities which are backed by the full faith and credit of the United States include Treasury bills, Treasury notes, Treasury bonds and obligations of the Government National Mortgage Association, the Farmers Home Administration and the Export-Import Bank. The Fund's direct investments in money market securities will generally favor securities with shorter maturities (maturities of less than 60 days) which are less affected by price fluctuations than are those with longer maturities. Certificates of deposit are certificates issued against funds deposited in a commercial bank or a savings and loan association for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Investments in bank certificates of deposit and bankers' acceptances are generally limited to domestic banks and savings and loan associations that are members of the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation having a net worth of at least $100 million dollars ("Domestic Banks") and domestic branches of foreign banks (limited to institutions having total assets not less than $1 billion or its equivalent). Investments in prime commercial paper may be made in notes, drafts, or similar instruments payable on demand or having a maturity at the time of issuance not exceeding nine months, exclusive of days of grace, or any renewal thereof payable on demand or having a maturity likewise limited. REPURCHASE AGREEMENTS. Under a repurchase agreement the Fund acquires a debt instrument for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such debt instrument at a fixed price. The Fund will enter into repurchase agreements only with banks which are members of the Federal Reserve System, or securities dealers who are members of a national securities exchange or are market makers in government securities and report to the Market Reports Division of the Federal Reserve Bank of New York and, in either case, only where the debt instrument collateralizing the repurchase agreement is a U.S. Treasury or agency obligation supported by the full faith and credit of the United States. A repurchase agreement may also be viewed as the loan of money by the Fund to the seller. The resale price specified is normally in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time the Fund is invested in the agreement and may not be related to the coupon rate on the underlying security. The term of these repurchase agreements will usually be short (from overnight to one week). At no time will the Fund invest in repurchase agreements of more than sixty days. The securities which are collateral for the repurchase agreements, however, may have maturity dates in excess of sixty days from the effective date of the repurchase agreement. The Fund will always receive, as collateral, securities whose market value, including accrued interest, will at least equal 102% of the dollar amount to be paid to the Fund under each agreement at its maturity, and the Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the Custodian. If the seller defaults, the Fund might incur a loss if the value of the collateral securing the repurchase agreement declines, and might incur disposition costs in connection with liquidation of the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, collection of the collateral by the Fund may be delayed or limited. The Fund also may not be able to substantiate its interests in the underlying securities. While management of the Fund acknowledges these risks, it is expected that such risks can be controlled through stringent security selection and careful monitoring procedures. The Fund may not enter into a repurchase agreement with more than seven days to maturity if, as a result, more than 10% of the market value of the Fund's net assets would be invested in such repurchase agreements and any other illiquid assets. For purposes of the diversification test for qualification as a regulated investment company under the Internal Revenue Code (the "Code"), Repurchase Agreements are not counted as cash, cash items or receivables, but rather as securities issued by the counter-party to the Repurchase Agreements. Page 13 SMALL-CAP INVESTMENTS. The Fund may invest in small capitalization companies, which may offer greater opportunities for growth of capital than investments in larger, more established companies. However, investing in smaller, newer issuers generally involves greater risks than investing in larger, more established issuers. Companies in which the Fund is likely to invest may have limited product lines, markets or financial resources and may lack management depth. The securities issued by such companies may have limited marketability and may be subject to more abrupt or erratic market movements than securities of larger, more established companies or the market averages in general. In addition, many small capitalization companies may be in the early stages of development. Accordingly, an investment in the Fund may not be appropriate for all investors. INVESTMENT RESTRICTIONS The investment restrictions set forth below have been adopted by the Fund as fundamental policies, to limit certain risks that may result from investment in specific types of securities or from engaging in certain kinds of transactions addressed by such restrictions. They may not be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Fund. Certain of these policies are detailed below, while other policies are set forth in the Statement of Additional Information. Changes in values of particular Fund assets or the assets of the Fund as a whole will not cause a violation of the investment restrictions so long as percentage restrictions are observed by the Fund at the time it purchases any security. The investment restrictions specifically provide that the Fund will not: (a) as to 75% of the Fund's total assets, invest more than 5% of its total assets in the securities of any one issuer. (This limitation does not apply to cash and cash items, or obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities); (b) purchase more than 10% of the voting securities, or more than 10% of any class of securities, of another investment company. For purposes of this restriction, all outstanding fixed income securities of an issuer are considered as one class; (c) purchase or sell commodities or commodity futures contracts, other than those related to stock indexes as previously outlined in "Investment Objectives and Policies;" (d) purchase or sell real estate or interests therein, although it may purchase securities of issuers which engage in real estate operations; (e) make loans of money or securities, except (i) by the purchase of fixed income obligations in which the Fund may invest consistent with its investment objectives and policies; or (ii) by investment in repurchase agreements (See "Investment Objectives and Policies"); (f) invest in securities of any company if, any officer or trustee of the Fund or TPL owns more than 0.5% of the outstanding securities of such company and such officers and trustees (who own more than 0.5%) in the aggregate own more than 5% of the outstanding securities of such company; (g) borrow money, except the Fund may borrow from banks (i) for temporary or emergency purposes in an amount not exceeding 5% of the Fund's assets or (ii) to meet redemption requests that might otherwise require the untimely disposition of portfolio securities, in an amount up to 33% of the value of the Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing was made. While borrowing exceeds 5% of the value of the Fund's total assets, the Fund will not purchase securities. Interest paid on borrowing will reduce net income; (h) pledge, hypothecate, mortgage or otherwise encumber its assets, except in an amount up to 33% of the value of its net assets, but only to secure borrowing for temporary or emergency purposes, such as to effect redemptions; or (i) purchase the securities of any issuer, if, as a result, more than 10% of the value of a Fund's net assets would be invested in securities that are subject to legal or contractual restrictions on resale Page 14 ("restricted securities"), in securities for which there are no readily available market quotations, or in repurchase agreements maturing in more than seven days, if all such securities would constitute more than 10% of the Fund's net assets. MANAGEMENT OF THE FUND BOARD OF TRUSTEES - ----------------- The members of the Fund's Board of Trustees are fiduciaries for the Fund's shareholders and are governed by the laws of the State of Delaware in this regard. They establish policy for the operation of the Fund and appoint the officers who conduct the daily business of the Fund. The Statement of Additional Information contains more information regarding Officers and Trustees. INVESTMENT ADVISOR - ------------------ Timothy Partners, Ltd. ("TPL") is a Florida limited partnership organized on December 6, 1993. TPL supervises the investment of the assets of the Fund in accordance with the objectives, policies and restrictions of the Fund. TPL approves the portfolio of securities selected by the Investment Manager (See "Investment Manager" below). To determine which securities are Excluded Securities with respect to abortion and pornography, TPL consults with three Christian ministries on these issues: The American Family Association (pornography), Pro Vita Advisors (direct and indirect participation and involvement in abortion) and Life Decisions International (indirect participation in abortion through corporate funding programs). TPL retains the right to change the ministries whose information it reviews, at its discretion. For its services, TPL is paid an annual fee equal to 0.85 % of the Fund's average daily net assets. This fee is subject to certain voluntary reductions in fees paid by the Fund. A portion of the advisory fee is paid by TPL to: (i) the Investment Manager for assisting in the selection of portfolio securities for the Fund and (ii) Covenant Financial Management ("CFM") as reimbursement for certain expenses related to the daily operations of the Fund performed by CFM. In addition, this fee also covers the cost of postage, materials and handling of the fulfillment function of processing prospectus requests as well as other sundry marketing and general administration expenses. The fee payable to and services provided by the Investment Manager are described under the heading "Investment Manager" below. The fee payable to and services provided by CFM are described at the end of this section. TPL's fee is higher than that charged by other funds, but is comparable to fees charged by funds with similar investment objectives. TPL has offices located at 1304 West Fairbanks Avenue, Winter Park, FL 32789. Arthur D. Ally, the President, Chairman and Trustee of the Fund, is President and a 70% shareholder of Covenant Funds, Inc. ("Covenant"), which is the managing general partner of TPL, located at 1304 West Fairbanks Avenue, Winter Park, FL 32789. Mr. Ally is also an individual general partner of TPL. Neither TPL nor its managing general partners previously has served as an advisor to any other registered investment company, but TPL has served as investment advisor exclusively to the Fund since the Fund's commencement of operations (March 21, 1994). Prior thereto, Mr. Ally had extensive securities industry experience having served as either financial consultant or branch manager for three securities firms over the previous seventeen years: Prudential Bache, Shearson Lehman Brothers and Investment Management & Research. Some or all of these firms may be used by the Investment Manager to execute portfolio trades for the Fund. Neither Mr. Ally nor any affiliated person to the Fund will receive any benefit from any of these transactions. TPL and CFM have entered into an agreement dated February 23, 1994, as amended April 23, 1996, whereby TPL pays CFM for certain overhead expenses related to the daily operations of the Fund that CFM carries out. These expenses include: salary of administrative personnel, cost of preparation of shareholder fulfillment kits, cost of phone lines and office space, and cost of postage and supplies. The annual fee is an amount to cover CFM's costs in providing services to TPL, payable by TPL on a monthly basis. Both parties have agreed that no profits will accrue to CFM as a result of this agreement. Arthur D. Ally is President and shareholder of 100% of CFM. Investment Manager - ------------------ Awad & Associates (the "Investment Manager"), a division of Raymond James & Associates, Inc., serves as the investment manager pursuant to a sub-investment advisory agreement among the Fund, Timothy Partners, Ltd. and Awad & Associates, dated January 1, 1997. The Investment Manager has offices at 477 Madison Avenue, New York, New York 10022. The Investment Manager Page 15 is a joint venture between James D. Awad, a twenty-nine year veteran of the investment management business, and Raymond James Financial, a diversified financial services firm traded on the NYSE. The Investment Manager has been retained by TPL pursuant to a sub-investment advisory agreement to assist in the selection and management of the Fund's investment securities and prepare the portfolio of securities of selected issuers with business practices that meet the objectives and policies of the Fund. TPL reviews the portfolio to insure compliance with the Fund's ethical standards. The Investment Manager's investment policy committee, comprised of James D. Awad, Dan Veru and Carol Egan, is responsible for the day-to-day management of the Fund's portfolio. James Awad is the senior investment officer of the Investment Manager. Mr. Awad has been in the investment business since part- time 1965 and full-time since 1969, focusing on research and portfolio management. Prior to forming Awad & Associates, he was President of BMI Capital, a successful money management firm he founded. In addition, Mr. Awad managed assets at Neuberger & Berman, Channing Management and First Investment Corp. The Investment Manager managed approximately $960 million in assets at December 31, 1997 for clients on a separate account basis utilizing the same investment methodology that it will employ for the Fund. The Investment Manager effects portfolio transactions for the Fund. In this regard, the Investment Manager will be governed by the policies set forth under "Investment Objectives and Policies". For its services, the Investment Manager is paid an annual fee by TPL equal to 0.42% of the average daily net assets of the Trust with respect to the first $10 million in assets; 0.40% of the next $5 million in assets; 0.35% of the next $10 million in assets; and 0.25% of assets over $25 million. Awad & Associates currently serves as co-investment advisor to two other investment companies: Heritage Series Trust: Heritage Small Cap Stock Fund and Calvert New Vision Small Cap Fund. At January 1, 1998, Awad & Associates managed $158 million in net assets of Heritage Small Cap Stock Fund and received an advisory fee of 0.50% of its average daily net assets with respect to the first $50 million in assets and 37.5% thereafter. Awad & Associates managed $90 million in net assets for the Calvert New Vision Small Cap Fund and received an advisory fee of .40% of its average daily net assets. INVESTMENT MANAGER'S HISTORICAL PERFORMANCE - ------------------------------------------- Set forth below are certain performance data provided by the Investment Manager relating to the composite of separately managed equity accounts of clients of the Investment Manager. These accounts have substantially similar investment objectives and policies as the Fund's and they are managed using substantially similar investment strategies and techniques as those employed by the Fund. It is important to note that these returns do not take into account the effects of the Fund's moral screening restrictions. The Investment Manager believes that its philosophy as a small capitalization, value-oriented investor would tend to eliminate from its investment portfolio the securities of companies directly involved in alcohol production, tobacco production or casino gambling, companies which would most likely have too large a capitalization and which would be much more mature and seasoned than the companies customarily acquired for the Investment Manager's core portfolio. Based upon the foregoing, the Investment Manager estimates that if the screening criteria that will be used in managing the Fund (using data available as of December 31,1996) had been applied with respect to the accounts included below, an insignificant percentage of the investments in the accounts at any one time over the 11-year period ended December 31, 1996 would have been prohibited investments, and the differential in performance would have been immaterial. It cannot be determined that future holdings of the Fund would be substantially identical to those in the otherwise similar accounts managed by the Investment Manager. These performance figures include the results of accounts exclusively managed by the Fund's portfolio manager, Jim Awad, while he was employed at a previous firm, BMI Capital, for the period from 1/1/86 through 3/12/92. These results are shown net of management fees and commissions. The results presented from 3/13/92 forward represent only those accounts managed exclusively by Jim Awad at Awad & Associates through Raymond James & Associates, and these results are shown net of the highest wrap fee applicable to the accounts (which includes management fees and commissions). These figures are a time-weighted average for the entire period, all of which would not be duplicated in any individual account and would not necessarily result in the same return for the investors. Further, the separately managed accounts are not subject to investment limitations, diversification requirements, and other restrictions imposed by the Investment Company Act of 1940, as amended and the Code; such conditions, if applicable, may have lowered the returns for the separately managed accounts. The performance presented does not represent the historical performance of the Fund and is not indicative of the Fund's future performance. Page 16 Source: All performance data was supplied by TPL and the Investment Manager. AVERAGE ANNUAL TOTAL RETURN ===========================
COMPOSITE PAST PERFORMANCE OF PAST PERFORMANCE OF PAST PERFORMANCE OF THROUGH PAST PERFORMANCE THE TIMOTHY THE TIMOTHY OF RUSSELL 2000 - ------- OF AWAD & ASSOCIATES PLAN CLASS A/1/ PLAN CLASS B/1/ INDEX AND BMI CAPITAL --------------- --------------- ----- --------------- WITH WITHOUT WITH WITHOUT ---- ------- ---- ------- SALES Load SALES LOAD CDSC CDSC ----------- ---------- ---- ---- 1997 25.7% 14.7% 21.4% 15.5% 20.5% 22.4% 1996 15.4% 6.4% 12.6% 7.0% 12.0% 16.5% 1995 45.7% 2.0% 7.9% -5.5% -0.5% 28.5% 1994 2.4% -8.2% -2.8% N/A N/A -1.9% 1993 10.3% N/A N/A N/A N/A 18.9% 1992 13.3% N/A N/A N/A N/A 18.4% 1991 39.8% N/A N/A N/A N/A 46.0% 1990 -13.2% N/A N/A N/A N/A -19.5% 1989 9.7% N/A N/A N/A N/A 16.2% 1988 26.0% N/A N/A N/A N/A 24.9% 1987 -5.4% N/A N/A N/A N/A -10.8% 1986 17.6% N/A N/A N/A N/A 4.0% ANNUALIZED RETURNS THROUGH DECEMBER 31, 1997 - --------------------------------------------- One Year 25.7% 14.7% 21.4% 15.5% 20.5% 22.4% Three Years 28.2% 11.7% 13.8% N/A N/A 22.3% Five Years 17.1% N/A N/A N/A N/A 16.4% Ten Years 16.3% N/A N/A N/A N/A 15.8%
Notes: ------ 1: "Past Performance of the Fund" relates to the Institutional Class and Retail Class shares of the series of the Trust known as The Timothy Plan. Effective September 26, 1997, the Institutional Class and Retail Class shares were redesignated as Class A and Class B, respectively. 2: The annualized return is calculated from monthly data, allowing for compounding. The formula used is in accordance with the acceptable methods set forth by the Association for Investment Management Research, the Bank Administration Institute and the Investment Council Association of America. Market value of the accounts was derived from the sum of the accounts' total assets, including cash, cash equivalents, short-term investments and securities valued at current market prices. 3: The Russell 2000 Index is an unmanaged index of common stock prices comprised of the smallest 2000 stocks in the Russell 3000 Index, which is an annual ranking of 3000 common stocks by market capitalization. The Russell 2000 Index represents approximately 10% of the total market capitalization of the Russell 3000 Index. The Russell 2000 Index is generally considered representative of securities similar to those invested in by the Investment Manager for the purpose of the composite performance numbers set forth above. 4: The Investment Manager's average annual management fee while at BMI Capital over the period 1/1/82 - 3/12/92 was 1% or 100 basis points. During this period, fees on the Investment Manager's individual accounts ranged from 0.5% to 1% (50 basis points to 100 basis points). The Investment Manager's performance figures reported are net of commissions and management fees. 5: The Composite Past Performance of Awad & Associates reported in the preceding table for the period 3/13/92 -- 12/31/97 was based on a universe of "wrap fee" accounts managed for various broker/dealers which are coordinated through Raymond James & Associates. The total value of these accounts at 12/31/97 was approximately $197 million out of a total client base of $960 million. The performance figures in the table represent all accounts that were managed with investment strategies and objectives substantially similar to those of the Fund. The performance Page 17 figures are shown net of the highest wrap fee applicable to the accounts (which includes all management fees and commissions paid to Raymond James & Associates). The performance figures reported are net of those wrap fees. UNDERWRITER - ----------- Timothy Partners, Ltd. ("TPL") 1304 West Fairbanks Avenue, Winter Park, Florida, was engaged pursuant to an agreement effective July 1, 1997 to act as underwriter for the Fund. The purpose of acting as underwriter is to facilitate the registration of shares of the Fund under state securities laws and to assist in the sale of shares. TPL also acts as investment advisor for the Fund. TPL is not compensated for providing underwriting services to the Fund. PLANS OF DISTRIBUTION - --------------------- The Fund has adopted two plans of distribution ("CLASS A PLAN" and "CLASS B PLAN") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, whereby it may reimburse TPL or others for expenses actually incurred by TPL or others in the promotion and distribution of the shares of each respective Class ("distribution expenses") and servicing its shareholders by providing personal services and/or maintaining shareholder accounts ("service fees"). Under the CLASS A PLAN, the Fund reimburses TPL and others for distribution expenses at an annual rate of 0.25% (of which, the full amount may be service fees), payable on a monthly basis, of the Fund's aggregate average daily net assets attributable to CLASS A shares. Under the CLASS B PLAN, the Fund reimburses TPL and others for distribution expenses and service fees at an annual rate of 1.00% (0.25% of which is a service fee) payable on a monthly basis, of the Fund's aggregate average daily net assets attributable to CLASS B shares. Amounts paid under the CLASS B PLAN are paid to TPL to compensate it for the services provided and the expenses borne by TPL and others in the distribution of CLASS B shares, including the payment of commissions for sales of CLASS B shares. The CLASS B PLAN is designed to permit an investor to purchase such shares without the assessment of a front-end sales load and at the same time permit the distributor to compensate authorized dealers with respect to such shares. In this regard, the purpose and function of the combined CDSC and distribution fee is to provide for the financing of the distribution of CLASS B shares. Other expenses include, but are not limited to, the printing of prospectuses and reports used for sales purposes, the preparation of sales literature and related expenses, advertisements, and other distribution-related expenses, including payments to securities dealers and others participating in the sale and servicing of Fund shares. All expenses of distribution and marketing in excess of the maximum amounts permitted by the CLASS A PLAN and CLASS B PLAN per annum will be borne by TPL and any amounts paid for the above services will be paid pursuant to a servicing or other agreement. The CLASS A PLAN and CLASS B PLAN also cover any payments made by the Fund, TPL, the Investment Manager, or other parties on behalf of the Fund, TPL, or the Investment Manager,to the extent such payments are deemed to be for the financing of any activity primarily intended to result in the sale of shares issued by the Fund within the context of Rule 12b-1. ADMINISTRATOR - ------------- Declaration Service Company ("DSC"), 555 North Lane, Suite 6160, Conshohocken, PA 19428, is the Fund's administrator pursuant to an Agreement with the Fund dated May 1, 1998. Under the agreement, DSC receives a fee for these services. CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTING/PRICING AGENT - ----------------------------------------------------------- Star Bank, 425 Walnut Street, M.L. 6118, Cincinnati, OH 45202-1118, is the custodian for the securities and cash of the Fund. DSC serves as the Fund's transfer agent. As transfer agent, it maintains the records of each shareholder's account, answers shareholder inquiries concerning accounts, processes purchases and redemptions of the Fund's shares, acts as dividend and distribution disbursing agent, and performs other shareholder service functions. Shareholder inquiries should be directed to the transfer agent at (800) 662-0201. DSC also performs certain accounting and pricing services for the Fund. This includes the daily calculation of the Fund's net asset value. EXPENSES - -------- Expenses attributable to the Fund, but not a particular Class, will be allocated to each Class on the basis of relative net assets. Except as indicated above. The Fund is responsible for the payment of its expenses, other than those borne by TPL. These expenses may include, but are not limited to: (a) management fees; (b) the charges and expenses of the Page 18 Fund's legal counsel and independent accountants; (c) brokers' commissions, mark-ups and mark-downs and any issue or transfer taxes chargeable to the Fund in connection with its securities transactions; (d) all taxes and corporate fees payable by the Fund to governmental agencies; (e) the fees of any trade association of which the Fund is a member; (f) the cost of stock certificates, if any, representing shares of the Fund; (g) amortization and reimbursements of the organization expenses of the Fund and the fees and expenses involved in registering and maintaining registration of the Fund and its shares with the U.S. Securities and Exchange Commission, and the preparation and printing of the Fund's registration statements and prospectuses for such purposes; (h) allocable communications expenses with respect to investor services and all expenses of shareholders and trustee meetings and of preparing, printing and mailing prospectuses and reports to shareholders; (i) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business; (j) state filing fees; and (k) compensation for employees of the Fund. ALTERNATIVE PURCHASE PLAN The Alternative Purchase Plan permits an investor to choose the method of purchasing shares that is most beneficial given the amount of the purchase and the length of time the investor expects to hold the shares. The primary difference between the Classes lies in their sales charge structures and ongoing expenses. CLASS A and CLASS B shares represent interests in the same portfolio of investments of the Fund. PURCHASING CLASS A SHARES - ------------------------- APPLICABLE SALES CHARGES CLASS A shares of the Fund are offered at the public offering price, which is the net asset value per share plus any applicable sales charge. The sales charge is a variable percentage of the offering price depending upon the amount of the sale. No sales charge will be assessed on the reinvestment of distributions. The sales charge will be assessed as follows: - -------------------------------------------------------------------------------- TOTAL SALES CHARGE
AS A % OF AS A % OF DEALER CONCESSION OFFERING NET AMOUNT AS A PERCENTAGE OF AMOUNT OF YOUR INVESTMENT PRICE INVESTED OFFERING PRICE - ------------------------- ----- -------- -------------- $1,000 but under $25,000...... 5.50% 5.82% 5.25% $25,000 but under $50,000..... 4.25% 4.44% 4.00% $50,000 but under $100,000.... 3.00% 3.09% 2.75% $100,000 but under $250,000... 2.00% 2.04% 1.75% $250,000 but under $500,000... 1.00% 1.01% 0.75% $500,000 or over.............. 0.00% 0.00% 0.00% - --------------------------------------------------------------------------------
The distributor will pay the appropriate dealer concession to those selected dealers who have entered into an agreement with the distributor. The dealer's concession may be changed from time to time. The distributor may from time to time offer incentive compensation to dealers (which sell shares of the Fund subject to sales charges) allowing such dealers to retain an additional portion of the sales load. A dealer who receives all of the sales load may be considered an "underwriter" under the Securities Act of 1933, as amended. All such sales charges are paid to the securities dealer involved in the trade, if any. The foregoing schedule of sales charges applies to single purchases and to purchases made under a Letter of Intent and pursuant to the Rights of Accumulation, both of which are described below. EXEMPTIONS FROM SALES CHARGES CLASS A shareholders who purchased shares on or before September 22, 1997 are not subject to the sales charge on past or future purchases. In addition, the Fund will waive sales charges for purchases by fee-based Registered Investment Advisers for their clients, broker/dealers with wrap fee accounts, registered brokers for their personal investment accounts, employees and employer related accounts of the Advisor and for an organization's retirement plan that places either (i) 200 or more participants or (ii) $300,000 or more of combined participant initial assets into the Fund. Shares of CLASS A purchased under the above circumstances will be issued at the net asset value next determined after receipt of the purchase order in proper Page 19 form by the transfer agent. REDUCED SALES CHARGES The sales charge for purchases of CLASS A shares of the Fund may be reduced through Rights of Accumulation or Letter of Intent. To qualify for a reduced sales charge, investors must so notify their authorized dealer, the Fund or the Fund's transfer agent or distributor at the time of each purchase of shares which qualifies for the reduction. RIGHTS OF ACCUMULATION A shareholder may qualify for a reduced sales charge by aggregating the net asset values of shares requiring the payment of an initial sales charge, previously purchased and currently owned in related accounts with the dollar amount of shares to be purchased. LETTER OF INTENT An investor may qualify for a reduced sales charge immediately by signing a non- binding Letter of Intent stating the investor's intention to invest during the next 13 months a specified amount which, if made at one time, would qualify for a reduced sales charge. The first investment cannot be made more than 90 days prior to the date of the Letter of Intent. Any redemptions made during the 13 month period will be subtracted from the amount of purchases in determining whether the Letter of Intent has been completed. During the term of a Letter of Intent, the transfer agent will hold shares representing 5.50% of the indicated amount in escrow for payment of a higher sales load if the full amount indicated in the Letter of Intent is not purchased. The escrowed shares will be released when the full amount indicated has been purchased. If the full amount indicated is not purchased within the 13 month period, an investor's escrowed shares will be redeemed in an amount equal to the difference in the dollar amount of sales charge actually paid and the amount of sales charge the investor would have had to pay on his or her aggregate purchases if the total of such purchases had been made at a single time. PURCHASING CLASS B SHARES - ------------------------- CONTINGENT DEFERRED SALES CHARGE A contingent deferred sales charge (CDSC) is imposed on certain redemptions of CLASS B shares. Because CLASS B shares are sold without an initial sales charge, the entire amount of an investor's purchase payment is invested in the Fund. CLASS B shares which are held for five years or more after purchase (calculated from the last day of the month in which the shares were purchased) will not be subject to any charge upon redemption. Shares redeemed sooner than five years after purchase may, however, be subject to a contingent deferred sales charge upon redemption. The charge is assessed on an amount equal to the lesser of the then current market value or the cost of the shares being redeemed. Accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price. In addition, no charge is assessed on shares derived from reinvestment of dividends or capital gains distributions. The amount of the CDSC, if any, varies depending on the number of years from the time of payment for the purchase of CLASS B shares until the time of redemption of such shares. Solely for purposes of determining the number of years from the time of any payment for the purchases of shares, all payments during a month are aggregated and deemed to have been made on the last day of the month. The amount of any applicable CDSC will be calculated by multiplying the lesser of the original purchase price or the net asset value of such shares at the time of redemption by the applicable percentage shown in the table below.
REDEMPTION WITHIN PERCENTAGE ----------------- ---------- First Year.......................... 5.0% Second Year......................... 4.0% Third Year.......................... 3.0% Fourth Year......................... 2.0% Fifth Year.......................... 1.0% Sixth Year and thereafter........... None
In determining whether a CDSC is applicable to a redemption, it is assumed that the redemption is first, of any shares in the shareholder's account that are not subject to a CDSC; second, of shares held for over five years or shares acquired pursuant to reinvestment of dividends or distributions, and third, of shares held longest during the five-year period. A commission or transaction fee of 4.00% of the purchase amount will be paid by the Fund's distributor to authorized dealers at the time of purchase. Additionally, the distributor may, from time to time, pay additional promotional incentives in the form of cash or other compensation to authorized dealers that sell CLASS B shares of the Fund. Page 20 CONTINGENT DEFERRED SALES CHARGE WAIVERS The CDSC is waived on redemptions of CLASS B shares (i) following the death or disability (as defined in the Code) of a shareholder; (ii) in connection with certain distributions from an IRA or other retirement plans; (iii) pursuant to the Fund's Systematic Cash Withdrawal Plan, but limited to 10% annually of the initial value of the account; and (iv) effected pursuant to the right of the Fund to liquidate a shareholder's account as described under "How to Redeem Shares." CONVERSION FEATURE CLASS B shares automatically convert to CLASS A shares once the economic equivalent of a 5.50% sales charge is recovered by the Fund for each investment account. The sales charge is recoverable by the Fund through the distribution fee paid pursuant to the CLASS B PLAN. The purpose of the conversion feature is to relieve the long-time shareholders FROM THE higher distribution fee associated with the CLASS B shares, once distributors have been adequately compensated for the higher distribution expenses attributable to the CLASS B shares through payments made pursuant to the CLASS B PLAN. Such conversion will be on the basis of the relative net asset values per share, without the imposition of any sales load, fee or other charge. CLASS B shares acquired through reinvestment of dividends will convert to CLASS A shares pro rata with CLASS B shares not acquired through dividend reinvestment. FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES In deciding which Class of shares to purchase, investors should take into consideration their investment goals, present and anticipated purchase amounts and time horizons. Investors should consider whether, during the anticipated life of their investment in the Fund, the accumulated distribution fees and the CDSC on CLASS B shares prior to the conversion would be less than the initial sales charge on CLASS A shares purchased at the same time, and to what extent such differential would be offset by the higher dividends per share on CLASS A shares. To assist investors in making this determination, investors should refer to the Example under " Expenses of the Fund," regarding the effect of the charges applicable to each Class of shares. In this regard, CLASS A shares may be more beneficial to the investor who qualifies for reduced initial sales charges or purchase at net asset value, as described under "Alternative Purchase Plan - Purchasing Class A Shares." Over time, the cumulative expense of the 1.00% annual service and distribution fees on the CLASS B shares of the Fund will approximate or exceed the expense of the maximum 5.50% initial sales charge plus the 0.25% annual distribution and service fee on the CLASS A shares of the Fund. CLASS A shares are subject to a lower distribution fee and, accordingly, receive correspondingly higher dividends per share. However, because initial sales charges are deducted at the time of purchase, investors in CLASS A shares do not have all their funds invested initially and, therefore, initially own fewer shares. Other investors might determine that it is more advantageous to purchase CLASS B shares and have all their funds invested initially, while remaining subject to a CDSC. Ongoing distribution fees on CLASS B shares are offset to the extent of the additional funds originally invested and any return realized on those funds. However, there can be no assurance as to the return, if any, which will be realized on such additional funds. CLASS A shares may be appropriate for investors who prefer to pay the sales charge up front, want to take advantage of the reduced sales charges available on larger investments, wish to maximize their current income from the start, prefer not to pay redemption charges or have a longer-term investment horizon. CLASS B shares may be appropriate for investors who wish to avoid a front-end sales charge, put 100% of their investment dollars to work immediately or have a longer-term investment horizon. CLASS B shareholders pay a CDSC if they redeem during the first five years after purchase, unless a sales charge waiver applies. Investors expecting to redeem during this period should consider the cost of the applicable CDSC in addition to the annual CLASS B service and distribution fee, as compared with the cost of the applicable initial sales charge and annual service and distribution fee applicable to CLASS A shares. HOW TO PURCHASE SHARES GENERAL - ------- Shares of the Fund may be purchased directly from the Fund or through authorized dealers at the net asset value per share, plus the applicable sales charge for CLASS A shares and at the net asset value per share for CLASS B shares. While no sales charge is imposed at the time CLASS B shares are purchased, a CDSC charge may be imposed at the time of redemption. (See "Purchasing Class B Shares" under "Alternative Purchase Plan"). The Fund reserves the right to reject any purchase order and to suspend the offering of shares of the Fund. The Fund will not accept a check endorsed over Page 21 by a third-party. The minimum initial investment for CLASS A shares and CLASS B shares is $1,000 with no minimum for subsequent investments. The Fund reserves the right to vary the initial investment minimum and minimums for additional investments at any time. There is no minimum initial investment requirement for qualified retirement plans. Purchase orders for shares of the Fund which are received by the transfer agent in proper form prior to the close of regular trading hours on the NYSE (currently 4:00 p.m. Eastern time) on any day that the Fund calculates its net asset value, are priced according to the net asset value determined on that day. Purchase orders for shares of the Fund received after the close of the NYSE on a particular day are priced as of the time the net asset value per share is next determined. Purchases may be made in one of the following ways: PURCHASES BY MAIL - ----------------- Shares may be purchased initially by completing the Investment Application on pages XX AND XX of this Prospectus and mailing it to the transfer agent, together with a check payable to THE TIMOTHY PLAN, c/o Declaration Service Company, P.O. Box 844, Conshohocken, PA 19428-0844. All checks for purchase of shares must be drawn on U.S. banks and be made payable to the Fund in U.S. dollars. Subsequent investments in an existing account in the Fund may be made at any time by sending a check payable to The Timothy Plan to the address set forth above. Please enclose the remittance portion of the confirmation of your previous investment or indicate on your check or a separate piece of paper your name, address and account number. PURCHASES THROUGH BROKER/DEALERS - -------------------------------- The Fund may accept telephone orders from broker/dealers or service organizations which have been previously approved by the Fund. It is the responsibility of such broker/dealers or service organizations to promptly forward purchase orders and payments for the same to the Fund. Shares of the Fund may be purchased through broker/dealers, banks and bank trust departments who may charge the investor a transaction fee or other fee for their services at the time of purchase. Minimums of broker/dealers or accounts opened through a fund network may apply. Wire orders for shares of the Fund received by DSC prior to 4:00 p.m., Eastern time, are confirmed at that day's public offering price. Orders received by dealers after 4:00 p.m., Eastern time, are confirmed at the public offering price on the following business day. PURCHASES BY WIRE - ----------------- To order shares for purchase by wiring federal funds, the transfer agent must first be notified by calling (800) 662-0201 to request an account number and furnish the Fund with your tax identification number. Following notification to the transfer agent, federal funds and registration instructions should be wired through the Federal Reserve Systemto: Star Bank ABA # 042000013 For: The Timothy Plan A/C # Further Credit: Your Timothy Plan A/C NO. FBO: Your Name A completed application with signature(s) of registrant(s) must be filed with the transfer agent immediately subsequent to the initial wire. Investors should be aware that some banks may impose a wire service fee. Shareholders may be subject to 31% withholding if original application is not received. AUTOMATIC INVESTMENT PLAN - ------------------------- Shares of the Fund may be purchased through an Automatic Investment Plan (the "Plan"). The Plan provides a convenient method by which investors may have monies deducted directly from their checking, savings or bank money market accounts for investment in the Fund. The minimum investment pursuant to this Plan is $100 per month. If you desire to take advantage of this Plan simply complete and remit the Automatic Investment Plan Application on pages XX AND XX. The account designated will be debited in the specified amount, on the date indicated, and Fund shares will be purchased. Only an account maintained at a domestic financial institution which is an ACH member may be so designated. The Fund may alter, modify or terminate this Plan at any time. For information about participating in the Automatic Investment Plan, call Declaration Service Company at (800) 662-0201. Page 22 HOW TO REDEEM SHARES Fund shares may be redeemed at their net asset value (subject to any applicable CDSC for CLASS B shares) on any business day that the NYSE is open. (See "Determination of Net Asset Value"). Redemptions will be effective at the net asset value per share next determined after the receipt by the transfer agent of a redemption request meeting the requirements described below. The Fund normally sends redemption proceeds on the next business day, but in any event redemption proceeds are sent within seven calendar days of receipt of a redemption request in proper form. Payment may also be made by wire directly to any bank previously designated by the shareholder in a shareholder account application. There is a $9.00 charge for redemptions by wire. Please note that the shareholder's bank also may impose a fee for wire service. The Fund will honor redemption requests of shareholders who recently purchased shares by check, but will not mail the proceeds until it is reasonably satisfied that the purchase check has cleared, which may take up to fifteen days from the purchase date, at which time the redemption proceeds will be mailed to the shareholder. To avoid delays of this kind, you may wish to purchase by wire if you are planning on redeeming your shares in the near future. Except as noted below, redemption requests received in proper form by the transfer agent prior to the close of regular trading hours on the NYSE on any business day that the Fund calculates its per share net asset value are effective that day. Redemption requests received after the close of the NYSE are effective as of the time the net asset value per share is next determined. Shares of the Fund may be redeemed through certain brokers, financial institutions or service organizations, banks and bank trust departments who may charge the investor a transaction fee or other fee for their services at the time of redemption. Such fees would not otherwise be charged if the shares were directly redeemed from the Fund. The Fund will satisfy redemption requests in cash to the fullest extent feasible, so long as such payments would not, in the opinion of TPL or the Board of Trustees, result in the necessity of the Fund selling assets under disadvantageous conditions and to the detriment of the remaining shareholders of the Fund. Pursuant to the Fund's Agreement and Declaration of Trust, payment for shares redeemed may be made either in cash or in-kind, or partly in cash and partly in- kind. However, the Fund has elected, pursuant to Rule 18f-1 under the Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund, during any 90-day period for any one shareholder. Payments in excess of this limit will also be made wholly in cash unless the Board of Trustees believes that economic conditions exist which would make such a practice detrimental to the best interests of the Fund. Any portfolio securities paid or distributed in-kind would be valued as described under "Determination of Net Asset Value." In the event that an in-kind distribution is made, a shareholder may incur additional expenses, such as the payment of brokerage commissions, on the sale or other disposition of the securities received from the Fund. In-kind payments need not constitute a cross-section of the Fund's portfolio. Where a shareholder has requested redemption of all or a part of the shareholder's investment, and where the Fund completes such redemption in-kind, the Fund will not recognize gain or loss for federal tax purposes, on the securities used to complete the redemption but the shareholder will recognize gain or loss equal to the difference between the fair market value of the securities received and the shareholder's basis in the Fund shares redeemed. Shares may be redeemed in one of the following ways: REDEMPTION BY MAIL - ------------------ Shares may be redeemed by submitting a written request for redemption to the transfer agent at 555 North Lane, Suite 6160, Conshohocken, PA 19428. A written redemption request to the transfer agent must: (i) identify the shareholder's account number, (ii) state the number of shares or dollars to be redeemed and (iii) be signed by each registered owner exactly as the shares are registered. A redemption request for amounts above $25,000, or redemption requests for which proceeds are to be mailed somewhere other than the address of record, must be accompanied by signature guarantees. Signatures must be guaranteed by an "eligible guarantor institution" as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible guarantor institutions include banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations. Broker/dealers guaranteeing signatures must be members of a clearing corporation or maintain net capital of at least $100,000. Credit unions must be authorized to issue signature guarantees. Signature guarantees will be accepted from any eligible guarantor institution which participates Page 23 in a signature guarantee program. The transfer agent may require additional supporting documents for redemptions made by corporations, executors, administrators, trustees and guardians. A redemption request will not be deemed to be properly received until the transfer agent receives all required documents in proper form. Questions with respect to the proper form for redemption requests should be directed to the transfer agent at (800) 662-0201. REDEMPTION BY TELEPHONE - ----------------------- Shareholders who have so indicated on the application, or have subsequently arranged in writing to do so, may redeem shares by instructing the transfer agent by telephone. In order to arrange for redemption by wire or telephone after an account has been opened, or to change the bank or account designated to receive redemption proceeds, a written request, accompanied by a signature guarantee, must be sent to the transfer agent at the address listed above. Neither the Fund nor any of its service contractors will be liable for any loss or expense in acting upon any telephone instructions that are reasonably believed to be genuine. In attempting to confirm that telephone instructions are genuine, the Fund will use such procedures as are considered reasonable, including requesting a shareholder to correctly state his or her Fund account number, the name in which his or her account is registered, his or her banking institution, bank account number and the name in which his or her bank account is registered. To the extent that the Fund fails to use reasonable procedures to verify the genuineness of telephone instructions, it and/or its service contractors may be liable for any such instructions that prove to be fraudulent or unauthorized. The Fund reserves the right to refuse a wire or telephone redemption if it is believed advisable to do so. Procedures for redeeming Fund shares by wire or telephone may be modified or terminated at any time by the Fund. SYSTEMATIC CASH WITHDRAWAL PLAN - ------------------------------- The Fund offers a Systematic Cash Withdrawal Plan ("Withdrawal Plan") as another option which may be utilized by an investor who wishes to withdraw funds from his or her account on a regular basis. To participate in this option, an investor must either own or purchase shares having a value of $10,000 or more. Automatic payments by check will be mailed to the investor on either a monthly, quarterly, semi-annual or annual basis in amounts of $100 or more. All withdrawals are processed on the 25th of the month or, if such day is not a business day, on the next business day and paid promptly thereafter. Please complete the appropriate section on the Investment Application enclosed within this Prospectus, indicating the amount of the distribution and the desired frequency. CLASS B shareholders who establish a Withdrawal Plan may redeem up to 10% annually of the shareholder's initial account balance without incurring a contingent deferred sales charge. Initial account balance means the amount of the shareholder's investment at the time the election to participate in the Withdrawal Plan is made. (See "Purchasing Class B Shares - Waiver of Contingent Deferred Sales Charge"). REDEMPTION BY AUTOMATED CLEARING HOUSE ("ACH") - ---------------------------------------------- A shareholder may elect to have redemption proceeds, cash distributions or systematic cash withdrawal payments transferred to a bank, savings and loan association or credit union that is an on-line member of the ACH system. There are no fees charged by the Fund associated with the use of the ACH service. ACH redemption requests must be received by the Fund's transfer agent before 4:00 p.m. New York time to receive that day's closing net asset value. ACH redemptions will be sent on the day following the shareholder's request. The funds from the ACH redemption will normally be available two days after the redemption has been processed. ADDITIONAL INFORMATION - ---------------------- The Fund also reserves the right to involuntarily redeem an investor's account where the account is worth less than the minimum initial investment required when the account is established, presently $1,000. (Any redemption of shares from an inactive account established with a minimum investment may reduce the account below the minimum initial investment, and could subject the account to redemption initiated by the Fund.) The Fund will advise the shareholder of such intention in writing at least sixty (60) days prior to effecting such redemption, during which time the shareholder may purchase additional shares in any amount necessary to bring the account back to $1,000. If the Trustees determine that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment in cash, the Fund may pay the redemption price in whole or in part by distribution in-kind of readily marketable securities, from the Fund, within certain limits prescribed by the U.S. Securities and Exchange Commission. Such securities will be valued on the basis of the procedures used to determine the net asset value at the time of the redemption. If shares are redeemed in-kind, the redeeming shareholder will incur brokerage costs in converting the Page 24 assets into cash. RETIREMENT PLANS The Fund offers its shares for use in certain Tax Deferred (such as IRA, defined contribution, 401(k) and 403(b)(7) plans) Retirement Plans. The Fund sponsors IRA and 403(b)(7) plans. Information on these Retirement Plans is available from DSC or by reviewing the Statement of Additional Information. SHARES OF BENEFICIAL INTEREST The beneficial interest of the Fund is divided into an unlimited number of shares ("Shares") with a par value of $0.001 each. If a matter to be voted on does not affect the interests of all Classes, then only the shareholders of the affected Class shall be entitled to vote on the matter. There are no preemptive rights. Shares, when issued, will be fully paid and nonassessable. Fractional shares have proportional voting rights. Shares of the Fund do not have cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of trustees can elect all of the trustees if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any person to the Board of Trustees. Currently, there are two classes of shares issued by the Fund. DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund will declare and pay annual dividends to its shareholders of substantially all of its net investment income, if any, earned during the year from its investments, and the Fund will distribute net realized capital gains, if any, once annually. Expenses of the Fund, including the advisory fee, are accrued each day. Reinvestments of dividends and distributions in additional shares of the Fund will be made at the net asset value determined on the ex-date of the dividend or distribution unless the shareholder has elected in writing to receive dividends or distributions in cash. An election may be changed by notifying DSC in writing thirty days prior to record date. Dividends paid by the Fund with respect to its CLASS A and CLASS B shares are calculated in the same manner and at the same time. Both CLASS A and CLASS B shares of the Fund will share proportionately in the investment income and expenses of the Fund, except that the per share dividends of CLASS B shares will be less than per share dividends of CLASS A shares as a result of additional distribution expenses charged to CLASS B shares. The Fund has qualified, and intends to continue to qualify, as a regulated investment company under Subchapter M of the Internal Revenue Code (the "Code"). As such, the Fund will not be subject to federal income tax, or to any excise tax, to the extent its earnings are distributed in accordance with the timing requirements imposed by the Code and by meeting certain other requirements relating to the sources of its income and diversification of its assets. The Fund intends to distribute substantially all of its net investment income and net capital gains. Dividends from net investment income or net short-term capital gains will be taxable to you as ordinary income, whether received in cash or in additional shares. Dividends from net investment income will generally qualify, in part, for the 70% corporate dividends received deduction, subject to certain holding period and debt financing restrictions imposed under the Code on the corporate investor claiming the deduction. The portion of the dividends so qualified depends on the aggregate qualifying dividend income received by the Fund from domestic (U.S.) sources. Distributions paid by the Fund from long-term capital gains, whether received in cash or in additional shares, are taxable to those investors who are subject to income tax as long-term capital gains, regardless of the length of time an investor has owned shares in the Fund. The Fund does not seek to realize any particular amount of capital gains during a year; rather, realized gains are a by-product of Fund management activities. Consequently, capital gains distributions may be expected to vary considerably from year to year. Also, for those investors subject to tax, if purchases of shares in the Fund are made shortly before the record date for a dividend or capital gains distribution, a portion of the investment will be returned as a taxable distribution. Dividends which are declared in October, November or December to shareholders of record in such a month but which, Page 25 for operational reasons, may not be paid to the shareholder until the following January, will be treated for tax purposes as if paid by the Fund and received by the shareholder on December 31 of the calendar year in which they are declared. The sale of shares of the Fund is a taxable event and may result in a capital gain or loss to shareholders subject to tax. Capital gain or loss may be realized from an ordinary redemption of shares or an exchange of shares between two mutual funds (or two series of a mutual fund). Any loss incurred on sale or exchange of the Fund's shares, held for six months or less, will be treated as a long-term capital loss to the extent of capital gain dividends received with respect to such shares. All or a portion of any applicable sales charge incurred in purchasing the Fund's shares will not be included in the federal tax basis of any of such shares sold or exchanged within ninety (90) days of their purchase (for purposes of determining gain or loss upon sale of such shares) if the sale proceeds are reinvested in the Fund or in another fund and a sales charge that would otherwise apply to the reinvestment is reduced or eliminated. Any portion of such sales charge excluded from the tax basis of the shares sold will be added to the tax basis of the shares acquired in the reinvestment. In addition to federal taxes, shareholders may be subject to state and local taxes on distributions. Each year, the Fund will mail you information on the tax status of the Fund's dividends and distributions. Of course, shareholders who are not subject to tax on their income would not be required to pay tax on amounts distributed to them by the Fund. The Fund is required to withhold 31% of taxable dividends, capital gains distributions, and redemptions paid to shareholders who have not complied with IRS taxpayer identification regulations. You may avoid this withholding requirement by certifying on your Account Registration Form your proper Taxpayer Identification Number and by certifying that you are not subject to backup withholding. The tax discussion set forth above is included for general information only. Prospective investors should consult their own tax advisers concerning the federal, state, local or foreign tax consequences of an investment in the Fund. DETERMINATION OF NET ASSET VALUE The net asset value per share of each Class of the Fund is determined by the Fund as of the close of regular trading on each day that the NYSE is open for unrestricted trading from Monday through Friday and on which there is a purchase or redemption of the Fund's share. The net asset value is determined by the Fund by dividing the value of the Fund's securities, plus any cash and other assets, less all liabilities, by the number of shares outstanding. Expenses and fees of the Fund, including the advisory and the distributor fees, are accrued daily and taken into account for the purpose of determining the net asset value. Fund securities listed or traded on a securities exchange for which representative market quotations are available will be valued at the last quoted sales price on the security's principal exchange on that day. Listed securities not traded on an exchange that day, and other securities which are traded in the over-the-counter market, will be valued at the last reported bid price in the market on that day, if any. Securities for which market quotations are not readily available and all other assets will be valued at their respective fair market value as determined in good faith by, or under procedures established by, the Board of Trustees. In determining fair value, the Trustees may employ an independent pricing service. Money market securities with less than sixty days remaining to maturity when acquired by the Fund will be valued on an amortized cost basis by the Fund, excluding unrealized gains or losses thereon from the valuation. This is accomplished by valuing the security at cost and then assuming a constant amortization to maturity of any premium or discount. If the Fund acquires a money market security with more than sixty days remaining to its maturity, it will be valued at current market value until the 60th day prior to maturity, and will then be valued on an amortized cost basis based upon the value on such date, unless the Trustees determine during such 60-day period that this amortized cost value does not represent fair market value. Net asset value is calculated separately for each Class of the Fund based on expenses applicable to the particular Class. Although the methodology and procedures for determining net asset value are identical for the Fund's Classes, the net asset value of the Classes may differ because of the different fees and expenses charged to each Class. Page 26 PERFORMANCE From time to time the Fund may advertise performance data. Fund performance may be shown by presenting one or more performance measurements, including average total return and aggregate annual total return. Average annual return reflects the average percentage change per year in value of an investment in the Fund. Aggregate total return reflects the total percentage change over the stated period. Any fees charged by banks or their institutional investors directly to their customer accounts in connection with investments in the Fund will not be included in the Fund's calculations of total returns. The Fund may compare its investment performance with appropriate market indices such as the Russell 2000 Index and to appropriate mutual fund indices; and the Fund may advertise its ranking compared to other similar mutual funds as reported by industry analysts such as Lipper Analytical Services, Inc. All data will be based on the Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions, the composition of the investments in the Fund, and the operating expenses of each Class. Investment performance also often reflects the risk associated with the Fund's investment objectives and policies. These factors should be considered when comparing the Fund to other mutual funds and other investment vehicles. The performance of CLASS A shares and CLASS B shares will differ because of CLASS A'S front-end sales charge (when applicable) and CLASS B'S CDSC (when applicable) and higher 12b-1 distribution expenses. Shareholders may obtain current performance information about the Fund by calling (800) TIM-PLAN. Further information about the performance of the Fund is included in the Fund's Semi-Annual Report dated June 30, 1997 and Annual Report dated December 31, 1997, which may be obtained without charge by contacting the Fund at (800) TIM- PLAN. Page 27 TIMOTHY PLAN(R) APPLICATION FOR CLASS A AND CLASS B MAIL TO: THE TIMOTHY PLAN C/O DECLARATION SERVICE COMPANY, P.O. BOX 844 CONSHOHOCKEN, PA 19428-0844 - ---------------------------------------------------------- BROKER DEALER: __________________________________________ REGISTERED REP: _________________________________________ BRANCH #:__________________ REP #: ____________ BRANCH NAME: ____________________________________________ BRANCH ADDRESS: _________________________________________ PHONE NUMBER: ( ) - Ext: - ---------------------------------------------------------- 1. INITIAL INVESTMENT ($1,000 minimum) FORM OF PAYMENT [_] Check for $_____________ enclosed. (make payable to "The Timothy Plan - Class A or B") You must indicate which class of shares in which you - - wish to invest. [_] Class A [_] Class B (Please check one.) [_] By Wire/*1/ An initial purchase of $_____________________ was wired on ___ _______ _____ ______________________________________ Date by Name of your Bank or Broker to account # _____________________ Number assigned by F/P/S 2. REGISTRATION (Please Print) No certificate will be issued unless requested in writing. INDIVIDUAL Must complete items 1, 3, 4 and 8 (you may choose options 5, 6 or 7). ________________________________________________________________________________ First Name Middle Name Last Name Social Security Number ________________________________________________________________________________ Joint Owner First Name*2 Middle Name Last Name Social Security Number Citizen of: [_] United States [_] Other (Please Indicate)_________________ GIFT TO MINORS Must complete items 1, 3, 4 and 8 (you may choose options 5, 6, or 7). ________________________________________________________________________________ Name of Custodian (Name one only) As Custodian For (Name one only) Under the ____________________ Uniform Gift to Minors Act ___ __ ____ State Security Number CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS Must complete items 1, 3, 4, 9 and 10 (you may choose options 5, 6, or 7) ________________________________________________________________________________ Name of Corporation, Partnership, Trust or Other ______________ _____________________________________ _____________________ Tax ID # Name of Trustee(s) Date of Trust 3. MAILING ADDRESS OF RECORD AND TELEPHONE NUMBER(S) ________________________________________________________________________________ Street Address and Apartment Number _________________________________________________ ______________ _____________ City State Zip Code Zip Extend ___________ ________________________ ___________ __________________________ (Area Code) Daytime Telephone Number (Area Code) Evening Telephone Number 4. DISTRIBUTION OPTIONS (Please indicate one) See page XX of the Prospectus for more detail. Income Dividends (check one box/line only) [_] reinvested [_] paid in cash Capital Gains Distributions (check one box/line only) [_] reinvested [_] paid in cash
5. LETTER OF INTENT (CLASS A ONLY) [_] I intend to purchase although I am not obligated to do so, shares of the Fund within a 13-month period which, together with the total asset value of shares owned, will aggregate at least (check one): [_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $500,000 RIGHTS OF ACCUMULATION I would like to apply Rights of Accumulation, if available, to my purchases of Fund shares. I understand that the exercise of these rights is subject to confirmation of my holdings by the Fund's transfer agent, Declaration Service Company. I agree to notify Declaration Service Company of my desire to apply these rights at the time of purchase and to provide the account numbers, names and relationships of each person to me. - --------------------------------------------------------- Fund Account Title Fund Account Number *1 Before making an initial investment by wire, you must be assigned an account number by calling (800) 662-0201. Then have your local bank wire your funds to: Star Bank, ABA # 042000013 for credit to The Timothy Plan, AC # . Be sure to include your name and account number on the wire. *2 (Joint ownership with rights of survivorship unless otherwise noted). Page 28
6. SYSTEMATIC WITHDRAWAL PLAN ($10,000 minimum necessary) See page XX of the Prospectus for more detail. A check in the amount of $______________________ (minimum $100.00) will be sent to you at your address of record unless otherwise noted. Please select desired frequency: [ ] Monthly [ ] Quarterly, in the months of __________, __________, __________, and __________. [ ] Semi-Annual or Annual, in the month(s) of __________, __________, or __________. To send cash distributions via the Automated Clearing House System ("ACH"), please contact the Fund at (800) TIM-PLAN to obtain the proper form(s). 7. TELEPHONE PRIVILEGES See page XX of the Prospectus for more detail. [ ] REDEEM SHARES BY TELEPHONE I (we) authorize Declaration Service Company to honor telephone instructions for my (our) account which I (we) understand the proceeds of which will be mailed only to the address of record or wired to the bank specified below. Neither the Fund or Declaration Service Company will be liable for properly acting upon telephone instructions believed to be genuine. Please attach a voided check on your account if the bank option is chosen. - --------------------------------------------------------------------------------------------------------------------------------- Name of Bank City State - ------------------- ------------------------------------------------------------------------- Bank Routing Number Account Number [ ] Checking [ ] Savings 8. AUTOMATIC INVESTMENT PLAN (For this option - please complete and send in form on pages XX and XX of the Prospectus). 9. SIGNATURE AND CERTIFICATION (This Section must be completed by INDIVIDUAL, JOINT and CUSTODIAL accounts). ---- THE FOLLOWING IS REQUIRED BY FEDERAL TAX LAW TO AVOID 31% BACKUP WITHHOLDING; "BY SIGNING BELOW, I CERTIFY UNDER PENALTIES OF PERJURY THAT THE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER ENTERED ABOVE IS CORRECT (OR I AM WAITING FOR A NUMBER TO BE ISSUED TO ME),, AND THAT I HAVE NOT BEEN NOTIFIED BY THE IRS THAT I AM SUBJECT TO BACKUP WITHHOLDING UNLESS I HAVE CHECKED THE BOX." IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING, CHECK BOX [ ]. THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP WITHHOLDING. RECEIPT OF CURRENT PROSPECTUS IS HEREBY ACKNOWLEDGED. - ------------------------------------------------------- ------------------------------ -------- Signature [ ]Owner [ ] Custodian [ ] Trustee Date - ------------------------------------------------------------------------------------------------- ---------------------------- Signature of Joint Owner (if applicable) Date 10. RESOLUTIONS (This Section must be completed by CORPORATIONS, PARTNERSHIPS, TRUSTS and OTHER ORGANIZATIONS). ---- RESOLVED:That this corporation or organization become a shareholder of the Timothy Plan (the "Fund) and that _____________________________________________________________ is (are) authorized to complete and execute the Application on behalf of the corporation or organization and take any action for it as may be necessary or appropriate with respect to its shareholders account(s) with the Fund, and it is FURTHER RESOLVED: That any one of the above noted officers is authorized to sign any documents necessary or appropriate to appoint Declaration Service Company as redemption agent of the corporation for shares of the Fund, to establish or acknowledge terms and conditions governing the redemption of said shares or to otherwise implement the privileges elected on the application. 11. CERTIFICATE (This Section must be completed by CORPORATIONS, PARTNERSHIPS, TRUSTS and OTHER ORGANIZATIONS). ---- I hereby certify that the foregoing resolutions are in conformity with the Charter and By-Laws or other empowering documents of the: ______________________________________________________________________________incorporated or formed under the laws of (Name of Corporation) _____________________________________and were adopted at a meeting of the Board of Directors or Trustees of the organization or (state) corporation duly called and held on ____________________ at which a quorum was preset and acting throughout, and that the same are now in full force and effect. I further certify that the following is (are) the duly elected officer(s) of the corporation or organization, authorized to act in accordance with the foregoing resolutions. NAME TITLE ------------------------------------------------ ------------------------------------- ------------------------------------------------ ------------------------------------- Witness my hand and the seal of the corporation or organization this ___________ day of _______________________, 19 ______. __________________________________________________ *Secretary-Clerk __________________________________________________ Other Authorized Officer (if required) * If the Secretary or other recording officer is authorized to act by the above resolutions, this certificate must also be signed by another officer.
Page 29 AUTOMATIC INVESTMENT PLAN APPLICATION - -------------------------------------------------------------------------------- HOW DOES IT WORK? 1. Declaration Service Company, through our bank, Star Bank, draws an automatic clearing house (ACH) debit electronically against your personal checking account each month, according to your instructions. 2. Choose any amount ($100 or more) that you would like to invest regularly and your debit for this amount will be processed by Declaration Service Company as if you had written a check yourself. 3. Shares will be purchased and a confirmation sent to you. HOW DO I SET IT UP? 1. Complete the forms and the Fund Application Form if you do not already have an existing account. 2. Mark one of your personal checks or deposit slips VOID, attach it to the forms below and mail to The Timothy Plan, c/o Declaration Service Company, P.O. Box 844, Conshohocken, PA 19428-0844 3. As soon as your bank accepts your authorization, debits will be generated and your Automatic Investment Plan started. In order for you to have ACH debits from your account, your bank must be able to accept ACH transactions and/or be a member of an ACH association. Your branch manager should be able to tell you your bank's capabilities. We cannot guarantee acceptance by your bank. 4. Please allow one month for processing of your Automatic Investment Plan before the first debit occurs. - -------------------------------------------------------------------------------- AUTOMATIC INVESTMENT PLAN APPLICATION TO: The Timothy Plan c/o Declaration Service Company P.O. Box 844 Conshohocken, PA 19428-0844 Please start an Automatic Investment Plan for me and invest_______________________________________. ($100 or more) on the [ ] 10th [ ] 15th [ ] 20th of each month, in shares of THE TIMOTHY PLAN - [_] CLASS A OR [_] CLASS B. (Please check one). Check one: [ ] I am in the process of establishing an account. or [ ] My account number is:____________________________________________ ______________________________________________________________________ Name as account is registered ______________________________________________________________________ Street ______________________________________________________________________ City State Zip + ext. I understand that my ACH debit will be dated on the day of each month as indicated above or as specified by written request. I agree that if such debit is not honored upon presentation, Declaration Service Company may discontinue this service and any share purchase made upon deposit of such debit may be canceled. I further agree that if the net asset value of the shares purchased with such debit is less when said purchase is canceled than when the purchase was made, Declaration Service Company shall be authorized to liquidate other shares or fractions thereof held in my account to make up the deficiency. This Automatic Investment Plan may be discontinued by Declaration Service Company upon 30-days written notice or at any time by the investor by written notice to Declaration Service Company which is received not later than 5 business days prior to the above designed investment date. Signature(s): ___________________________________________________________ ___________________________________________________________ Page 30 AUTOMATIC INVESTMENT PLAN APPLICATION - -------------------------------------------------------------------------------- BANK REQUEST AND AUTHORIZATION TO: _______________________________ ________________________________ Name of Your Bank Bank Checking Account Number ________________________________________________________________________________ Address of Bank or Branch Where Account is Maintained As a convenience to me, please honor ACH debits on my account drawn by Declaration Service Company, Star Bank and payable to "THE TIMOTHY PLAN - CLASS A or CLASS B". I agree that your rights with respect to such debit shall be the same as if it were a check drawn upon you and signed personally by me. This authority shall remain in effect until you receive written notice from me changing its terms or revoking it, and until you actually receive such notice, I agree that you shall be fully protected in honoring such debit. I further agree that if any debit is dishonored, whether with or without cause or whether intentionally or inadvertently, you shall be under no liability whatsoever. DEPOSITOR'S ____________________________________________________________________ Signature of Bank Depositor(s) as shown on bank records. NOTE: Your bank must be able to accept ACH transactions and/or be a member of an ACH association in order for you to use this service. - -------------------------------------------------------------------------------- INDEMNIFICATION AGREEMENT TO: The bank named above So that you may comply with your Depositor's request and authorization, THE TIMOTHY PLAN agrees as follows: 1. To indemnify and hold you harmless from any loss you may suffer arising from or in connection with the payment by you of a debit drawn by Declaration Service Company to the order of THE TIMOTHY PLAN designated on the account of your depositor(s) executing the authorization including any costs or expenses reasonably incurred in connection with such loss. THE TIMOTHY PLAN will not, however, indemnify you against any loss due to your payment of any debit generated against insufficient funds. 2. To refund to you any amount erroneously paid by you to Declaration Service Company on any such debit if claim for the amount of such erroneous payment is made by you within 3 months of the date of such debit on which erroneous payment was made. Page 31 TIMOTHY PLAN/(R)/ BROKER DEALER: __________________________ REGISTERED REP: __________________________ BRANCH #:____________ REP #: ___________ CLASS A AND CLASS B BRANCH NAME: ____________________________ Request for Transfer BRANCH ADDRESS: _________________________ PHONE NUMBER: ( ) - Ext: MAIL TO: THE TIMOTHY PLAN C/O DECLARATION SERVICE COMPANY, P.O. BOX 844, CONSHOHOCKEN, PA 19428-0844 1. INVESTOR INFORMATION - -------------------------------------------------------------------------------- First Name Middle Initial Last Name - -------------------------------------------------------------------------------- Street Address - --------------------------------------- ----- -------- ---------- City State Zip Code Zip Extend - -------------------------- ------------- Social Security Number Date of Birth - --------------- -------------------------------- (Area Code) Residence Telephone Number - --------------- -------------------------------- (Area Code) Business Telephone Number 2. PREVIOUS INVESTMENT FIRM - -------------------------------------------------------------------------------- Name of Previous Firm - -------------------------------------------------------------------------------- Address - ---------------------------------------------- ------------------------ Investor's Name Account Number Type of Account: [_] Individual [_] Joint [_] UGMA [_] Trust Type of Assets: [_] Mutual Fund [_] Money Market [_] CD (Immediately/At Maturity) [_] Securities
3. AMOUNT TO BE TRANSFERRED TO THE TIMOTHY PLAN [_] Liquidate all assets from the above account and transfer the proceeds. [_] Liquidate $_________________________ from the above account and transfer the proceeds. 4. TRANSFER INSTRUCTIONS Make check payable to: The Timothy Plan [_] Class A or [_] Class B. You must indicate which class of shares in which you wish to invest. (Please check one.) Mail to: The Timothy Plan, c/o Declaration Service Company, P.O. Box 844, Conshohocken, PA 19428-0844 5. INVESTOR'S AUTHORIZATION - ------------------------------- ----------------- ----------------------- Signature of Participant Date Signature Guarantee Page 32 THIS PAGE INTENTIONALLY LEFT BLANK. Page 33 NOTES Page 34 INVESTMENT ADVISOR Timothy Partners, Ltd. 1304 West Fairbanks Avenue Winter Park, FL 32789 INVESTMENT MANAGER Awad & Associates 477 Madison Avenue New York, NY 10022 UNDERWRITER Timothy Partners, Ltd 1304 West Fairbanks Avenue Winter Park, FL 32789 SHAREHOLDER SERVICES Declaration Service Company 555 North Lane Suite 6160 Conshohocken, PA 19428 CUSTODIAN Star Bank 425 Walnut Street M.L. 6118 Cincinnati, OH 45202-1118 LEGAL COUNSEL Pepper, Hamilton LLP 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103 AUDITORS Tait, Weller & Baker Two Penn Center Suite 800 Philadelphia, PA 19103 For Additional Information About The Timothy Plan, Please Call: (800) TIM-PLAN Visit The Timothy Plan web site on the Internet at: WWW.TIMOTHYPLAN.COM PROSPECTUS FOR THE TIMOTHY PLAN VARIABLE SERIES MAY 1, 1998 - -------------------------------------------------------------------------------- Distributed By: Timothy Partners, Ltd., 1304 West Fairbanks Avenue, Winter Park, Florida 32789 (800) 846-7526 - -------------------------------------------------------------------------------- THE TIMOTHY PLAN (the "Trust") is an open-end diversified management investment company. The Trust was organized as a series Delaware business trust and currently offers shares of two series, designed to offer investors investment opportunities that best meet their needs. This Prospectus pertains only to The Timothy Plan Variable Series (the "Fund") of the Trust. The Fund is intended to be a funding vehicle for variable annuity contracts ("VA Contracts") offered through separate accounts of the Annuity Investors Life Insurance Company (the "Insurance Company"). The primary objective of the Fund is long-term capital growth and the secondary objective is current income. The Fund seeks to achieve its objectives by investing in securities issued by companies which, in the opinion of the Fund's advisor, conduct business in accordance with the stated philosophy and principles of the Fund (See "Investment Objectives and Policies"). There is no assurance that the Fund's objectives will be achieved. This Prospectus sets forth concisely the information about the Fund that a prospective investor should know before investing in the Fund through a VA Contract offered by the Insurance Company. Investors should read and retain this Prospectus for future reference. More information about the Fund has been filed with the U.S. Securities and Exchange Commission, and is contained in the "Statement of Additional Information" dated May 1, 1998, as amended from time to time, which is available at no charge upon request to the Fund. The Fund's Statement of Additional Information is incorporated herein by reference. The Statement of Additional Information, material incorporated by reference into this Prospectus, and other information regarding the Fund are maintained electronically with the U.S. Securities and Exchange Commission at its Internet Web site (http: //www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR HAS THE U.S. SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND MAY BE PURCHASED ONLY BY THE SEPARATE ACCOUNTS OF INSURANCE COMPANIES, FOR THE PURPOSE OF FUNDING VARIABLE ANNUITY CONTRACTS. THE FUND MAY NOT BE AVAILABLE IN YOUR STATE DUE TO VARIOUS INSURANCE REGULATIONS. PLEASE CHECK WITH YOUR INSURANCE COMPANY FOR AVAILABILITY. IF THE FUND IS NOT AVAILABLE IN YOUR STATE, THIS PROSPECTUS IS NOT TO BE CONSIDERED A SOLICITATION. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE SEPARATE ACCOUNT OF THE SPECIFIC INSURANCE PRODUCT, WHICH ACCOMPANIES THIS PROSPECTUS. Visit The Timothy Plan web site on the Internet at: WWW.TIMOTHYPLAN.COM Page 37 TABLE OF CONTENTS
PAGE Prospectus Summary.............................................. The Fund........................................................ Investment Objectives and Policies.............................. Risk Factors.................................................... Investment Restrictions......................................... Management of the Fund.......................................... Purchases and Redemptions of Shares............................. Shares of Beneficial Interest................................... Dividends, Distributions and Taxes.............................. Determination of Net Asset Value................................ Performance.....................................................
This Prospectus is not an offering of the securities herein described in any jurisdiction or to any person to whom it is unlawful for the Fund to make such an offer or solicitation. No sales representative, dealer, or other person is authorized to give any information or make any representation other than those contained in this Prospectus. Page 38 PROSPECTUS SUMMARY ================================================================================ THE FUND THE TIMOTHY PLAN VARIABLE SERIES (the "Fund") is a separate series of The Timothy Plan (the "Trust"), an open-end, diversified management investment company established as a series Delaware business trust. The Fund is designed to provide an investment vehicle for variable annuity contracts ("VA Contracts") offered by the Annuity Investors Life Insurance Company (the "Insurance Company"). INVESTMENT The primary objective of the Fund is long-term capital OBJECTIVES growth and the secondary objective is current income. The Fund seeks to achieve its objectives while abiding by the ethical standards established for investments by the Fund. As with any mutual fund, there is no assurance that the Fund will achieve its objectives. INVESTMENT The Fund invests in securities issued by companies which, in POLICY the opinion of the Fund's advisor, conduct business in accordance with certain ethical standards. This policy securities of companies involved in the businesses of alcohol production, tobacco production, or casino gambling, or which are directly or indirectly involved in pornography or abortion. The securities in which the Fund shall be precluded from investing, by virtue of the Fund's ethical standards, are referred to as the "Excluded Securities." INVESTMENT Timothy Partners, Ltd. ("TPL") is the Fund's investment ADVISOR advisor and Awad & Associates (the "Investment Manager"), a division of Raymond & James, Inc., is the Fund's investment manager. DISTRIBUTOR TPL is also the distributor and underwriter of the Fund's shares. PURCHASES Purchases and redemptions of shares may be made only by the AND Insurance Company for its separate accounts at the REDEMPTIONS direction of VA Contract owners. Please refer to the prospectus of your VA Contract for information on how to direct investments in, or redemptions from, the Fund and any fees that may apply. The above information is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Prospectus. Page 39 THE FUND THE TIMOTHY PLAN (the "Trust") is an open-end, diversified management investment company commonly known as a mutual fund. The Trust was established as a series Delaware business trust on December 16, 1993. The Trust currently offers two series of shares: The Timothy Plan and The Timothy Plan Variable Series. This Prospectus only pertains to The Timothy Plan Variable Series (the "Fund"). Shares of the Fund are offered only for the purpose of funding variable annuity contracts ("VA Contracts") offered through separate accounts of the Annuity Investors Life Insurance Company (the "Insurance Company"). INVESTMENT OBJECTIVES AND POLICIES Set forth below are the investment objectives and policies of the Fund. The investment objectives of the Fund are considered fundamental policies and may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities. There can be no assurance that the Fund will achieve its objectives. The Fund's primary objective is long-term capital growth, with a secondary objective of current income. The Fund shall seek to achieve its objectives while abiding by ethical standards established for investments by the Fund. Those standards preclude the investment in securities of companies involved in the businesses of alcohol production, tobacco production, or casino gambling, or which are directly or indirectly involved in pornography or abortion. The securities in which the Fund shall be precluded from investing, by virtue of the Fund's ethical standards, are referred to as the "Excluded Securities." The Fund will invest most of its assets in common stocks and American Depository Receipts ("ADRs"), although it may also invest in other types of securities including securities convertible into common stocks and common stock equivalents (including rights and warrants), preferred stocks, short-term U.S. Government securities, and/or other high-quality, short-term debt securities (commercial paper, repurchase agreements, bankers' acceptances, certificates of deposit and other fixed income securities (non-convertible and convertible bonds, debentures and notes issued by U.S. corporations and certain bank obligations and participations). High-quality debt securities are those that are rated Aa or better by Moody's, or AA or better by Standard & Poor's, or that are of comparable quality. See "Risk Factors" herein, and the Statement of Additional Information for information relating to these securities. While it is the Fund's policy to seek long-term investments, changes will be made whenever management believes that such changes will strengthen the Fund's investments and realization of its objectives. The Fund will pursue its objectives by investing a major portion of its assets in securities of companies which offer prospects for growth of capital in accordance with the portfolio investment techniques described below. The Fund seeks to achieve its investment objectives by investing primarily in common stocks and ADRs, while foregoing investments in the Excluded Securities. Awad & Associates (the "Investment Manager"), a division of Raymond James & Associates, Inc., serves as sub-investment Page 40 advisor to Timothy Partners, Ltd. (the "TPL") and will select the investments for the Fund, but will not invest in securities which TPL determines are Excluded Securities. TPL has instructed the Investment Manager to avoid investment in any company directly involved in the business of alcohol production, tobacco production, or casino gambling. In addition, TPL will compile and maintain a list of companies that it determines, by using information gathered from its own proprietary research in addition to material published by three Christian ministries, participate directly or indirectly in either pornography or abortion. TPL will use its best judgment in determining which companies, through their corporate practices in either of these two areas, need to be placed on the Excluded Securities list. TPL also reserves the right to exercise its best judgment to exclude investment in other companies whose corporate practices may not fall within the exclusions described above, but nevertheless could be found offensive to basic traditional Judeo Christian values. The three Christian ministries that publish information that TPL will utilize in identifying companies directly or indirectly involved in pornography or abortion are as follows: (1) The American Family Association (to identify companies engaged in pornography); (2) Pro Vita Advisors (to identify companies that directly and indirectly participate in abortion); and (3) Life Decisions International (to identify companies that indirectly support abortion causes through corporate funding programs). TPL retains the right to change the ministries whose information it reviews, at its discretion. After eliminating the Excluded Securities, the Investment Manager will construct a portfolio of investments to produce the highest possible risk-adjusted return on investment as is consistent with the Fund's objectives and policies. The Fund will invest primarily in a diversified portfolio of equity securities of companies whose market capitalizations exceed $200 million, and whose securities trade on the New York Stock Exchange ("NYSE"), the American Stock Exchange and the NASDAQ National Market System. Since the Fund is an equity fund, the Investment Manager seeks investments that show the greatest potential for growth, with income as a secondary factor. Therefore, these companies may or may not pay dividends. Potential equity investment candidates will be analyzed to determine their ability to repay all fixed debt obligations (including certain "off balance sheet debts" such as operating lease obligations and unfunded pension liabilities) from their historical level of net investment income within a reasonable time period, generally less than five years. Securities are typically sold when an appreciation objective is met. The Fund may invest up to 30% of its assets in cash or debt securities. Although the Investment Manager does not utilize a market timing strategy, if market conditions are viewed to require that the Fund take a temporary defensive position, the Fund may invest up to 100% of its assets in (i) debt securities issued by the U.S. Government, its agencies or instrumentalities, (ii) commercial paper, or (iii) certificates of deposit and bankers' acceptances with respect to any of the foregoing investments. The Fund may also invest in such securities pending the investment of the proceeds of certain sales of portfolio securities and at such other times when suitable equity securities are not available. It is impossible to predict whether, or for how long, the Fund will use any such temporary defensive strategies. TPL will attempt to monitor and respond to changes in business policies within the companies selected for investment. It is possible that securities in which the Fund has invested may become Excluded Securities. In such event, the Fund will sell its position in those securities subject to general market considerations. Page 41 RISK FACTORS INVESTMENT RESTRICTIONS OF THE FUND. The ethical standards established for investments by the Fund limit the pool of securities from which investment securities may be selected by the Investment Manager. Although TPL believes the Fund's investment objective of long-term capital growth can be achieved notwithstanding the effect of the Fund's ethical standards, this objective may be affected by the limitations imposed by TPL, in eliminating the Excluded Securities as potential investments. ADVISOR AND INVESTMENT MANAGER. The principals of the managing general partner of TPL have been engaged in various aspects of the retail brokerage and financial advisory business for over 20 years. The Investment Manager has advised individuals, pension funds, trusts and institutions. Awad & Associates, a division of Raymond James & Associates, Inc., currently manages approximately $960 million in these accounts. The Investment Manager currently serves as co- investment advisor to two other investment companies: Heritage Series Trust: Heritage Small Cap Stock Fund and the Calvert New Visions Small Cap Fund . TPL has served as investment advisor exclusively to the Fund since the Fund's commencement of operations (March 21, 1994), but has not previously served as investment advisor to any other investment company. PORTFOLIO TURNOVER. It is anticipated that the annualized portfolio turnover rate for the Fund generally will not exceed a range of 50% to 75%, and may be lower than 50%, during most periods. High portfolio turnover involves additional transaction costs (such as brokerage commissions) which are borne by the Fund, and might involve adverse tax effects. (See "Dividends, Distributions and Taxes"). RISKS OF CERTAIN FIXED INCOME SECURITIES INTEREST BEARING DEBT INSTRUMENTS. The market value of interest-bearing debt securities, if and when held by the Fund, is affected by changes in interest rates. There is normally an inverse relationship between the market value of securities sensitive to prevailing interest rates and actual changes in interest rates; i.e., a decline in interest rates produces an increase in market value, while an increase in rates produces a decrease in market value. Moreover, the longer the remaining maturity of a security, the greater the effect of interest rate changes on the market value of such a security. In addition, changes in an issuer's ability to make payments of interest and principal and in the market's perception of an issuer's creditworthiness also affect the market value of the debt securities of that issuer. MONEY MARKET SECURITIES. The Fund will select money market securities for investment when such securities offer a current market rate of return which the Fund considers reasonable in relation to the risk of the investment, and the issuer can satisfy suitable standards of creditworthiness set by the Fund. The money market securities in which the Fund may invest are repurchase agreements, certificates of deposit, U.S. Government securities, commercial paper and securities of money market mutual funds. Although the Fund intends to invest primarily in common stocks, common stock equivalents, and ADRs, the Fund may invest up to 30% of its assets directly in money market securities whenever deemed appropriate to achieve the Fund's investment objectives. It may invest without limitation in such securities on a temporary basis for defensive purposes. Page 42 Securities issued or guaranteed as to principal and interest by the U.S. Government ("Government Securities") include a variety of Treasury securities, which differ in their interest rates, maturities and date of issue. Treasury bills have a maturity of one year or less; Treasury notes have maturities of one to ten years; Treasury bonds generally have a maturity of greater than five years. The Fund will only acquire Government Securities which are supported by the "full faith and credit" of the United States. Securities which are backed by the full faith and credit of the United States include Treasury bills, Treasury notes, Treasury bonds and obligations of the Government National Mortgage Association, the Farmers Home Administration and the Export-Import Bank. The Fund's direct investments in money market securities will generally favor securities with shorter maturities (maturities of less than 60 days) which are less affected by price fluctuations than are those with longer maturities. Certificates of deposit are certificates issued against funds deposited in a commercial bank or a savings and loan association for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Investments in bank certificates of deposit and bankers' acceptances are generally limited to domestic banks and savings and loan associations that are members of the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation having a net worth of at least $100 million dollars ("Domestic Banks") and domestic branches of foreign banks (limited to institutions having total assets not less than $1 billion or its equivalent). Investments in prime commercial paper may be made in notes, drafts, or similar instruments payable on demand or having a maturity at the time of issuance not exceeding nine months, exclusive of days of grace, or any renewal thereof payable on demand or having a maturity likewise limited. REPURCHASE AGREEMENTS. Under a repurchase agreement the Fund acquires a debt instrument for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such debt instrument at a fixed price. The Fund will enter into repurchase agreements only with banks which are members of the Federal Reserve System, or securities dealers who are members of a national securities exchange or are market makers in government securities and report to the Market Reports Division of the Federal Reserve Bank of New York and, in either case, only where the debt instrument collateralizing the repurchase agreement is a U.S. Treasury or agency obligation supported by the full faith and credit of the United States. A repurchase agreement may also be viewed as the loan of money by the Fund to the seller. The resale price specified is normally in excess of the purchase price, reflecting an agreed upon interest rate. The rate is effective for the period of time the Fund is invested in the agreement and may not be related to the coupon rate on the underlying security. The term of these repurchase agreements will usually be short (from overnight to one week). At no time will the Fund invest in repurchase agreements of more than sixty days. The securities which are collateral for the repurchase agreements, however, may have maturity dates in excess of sixty days from the effective date of the repurchase agreement. The Fund will always receive, as collateral, securities whose market value, including accrued interest, will at least equal 102% of the dollar amount to be paid to the Fund under each agreement at its maturity, and the Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the Custodian. If the seller defaults, the Fund might incur a loss if the value of the collateral securing the repurchase agreement declines, and might incur disposition costs in connection with liquidation of the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, collection of the collateral by the Fund may be delayed or limited. The Fund also may not be able Page 43 to substantiate its interests in the underlying securities. While management of the Fund acknowledges these risks, it is expected that such risks can be controlled through stringent security selection and careful monitoring procedures. The Fund may not enter into a repurchase agreement with more than seven days to maturity if, as a result, more than 10% of the market value of the Fund's net assets would be invested in such repurchase agreements and any other illiquid assets. For purposes of the diversification test for qualification as a regulated investment company under the Internal Revenue Code (the "Code"), Repurchase Agreements are not counted as cash, cash items or receivables, but rather as securities issued by the counter-party to the Repurchase Agreements. SMALL-CAP INVESTMENTS. The Fund may invest in small capitalization companies, which may offer greater opportunities for growth of capital than investments in larger, more established companies. However, investing in smaller, newer issuers generally involves greater risks than investing in larger, more established issuers. Companies in which the Fund is likely to invest may have limited product lines, markets or financial resources and may lack management depth. The securities issued by such companies may have limited marketability and may be subject to more abrupt or erratic market movements than securities of larger, more established companies or the market averages in general. In addition, many small capitalization companies may be in the early stages of development. Accordingly, an investment in the Fund may not be appropriate for all investors. INVESTMENT RESTRICTIONS The investment restrictions set forth below have been adopted by the Fund as fundamental policies, to limit certain risks that may result from investment in specific types of securities or from engaging in certain kinds of transactions addressed by such restrictions. They may not be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Fund. Certain of these policies are detailed below, while other policies are set forth in the Statement of Additional Information. Changes in values of particular Fund assets or the assets of the Fund as a whole will not cause a violation of the investment restrictions so long as percentage restrictions are observed by the Fund at the time it purchases any security. The investment restrictions specifically provide that the Fund will not: (a) as to 75% of the Fund's total assets, invest more than 5% of its total assets in the securities of any one issuer. (This limitation does not apply to cash and cash items, or obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities); (b) purchase more than 10% of the voting securities, or more than 10% of any class of securities, of another investment company. For purposes of this restriction, all outstanding fixed income securities of an issuer are considered as one class; (c) purchase or sell commodities or commodity futures contracts, other than those related to stock indexes as previously outlined in "Investment Objectives and Policies;" (d) purchase or sell real estate or interests therein, although it may purchase securities of issuers which engage in real estate operations; Page 44 (e) make loans of money or securities, except (i) by the purchase of fixed income obligations in which the Fund may invest consistent with its investment objectives and policies; or (ii) by investment in repurchase agreements (See "Investment Objectives and Policies"); (f) invest in securities of any company if, any officer or trustee of the Fund or TPL owns more than 0.5% of the outstanding securities of such company and such officers and trustees (who own more than 0.5%) in the aggregate own more than 5% of the outstanding securities of such company; (g) borrow money, except the Fund may borrow from banks (i) for temporary or emergency purposes in an amount not exceeding 5% of the Fund's assets or (ii) to meet redemption requests that might otherwise require the untimely disposition of portfolio securities, in an amount up to 33% of the value of the Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing was made. While borrowing exceeds 5% of the value of the Fund's total assets, the Fund will not purchase securities. Interest paid on borrowing will reduce net income; (h) pledge, hypothecate, mortgage or otherwise encumber its assets, except in an amount up to 33% of the value of its net assets, but only to secure borrowing for temporary or emergency purposes, such as to effect redemptions; or (i) purchase the securities of any issuer, if, as a result, more than 10% of the value of a Fund's net assets would be invested in securities that are subject to legal or contractual restrictions on resale ("restricted securities"), in securities for which there are no readily available market quotations, or in repurchase agreements maturing in more than seven days, if all such securities would constitute more than 10% of the Fund's net assets. MANAGEMENT OF THE FUND BOARD OF TRUSTEES - ----------------- The members of the Fund's Board of Trustees are fiduciaries for the Fund's shareholders and are governed by the laws of the State of Delaware in this regard. They establish policy for the operation of the Fund and appoint the officers who conduct the daily business of the Fund. The Statement of Additional Information contains more information regarding officers and Trustees. INVESTMENT ADVISOR - ------------------ Timothy Partners, Ltd. ("TPL") is a Florida limited partnership organized on December 6, 1993. TPL supervises the investment of the assets of the Fund in accordance with the objectives, policies and restrictions of the Fund. TPL approves the portfolio of securities selected by the Investment Manager (See "Investment Manager" below). To determine which securities are Excluded Securities with respect to abortion and pornography, TPL consults with three Christian ministries on these issues: The American Family Association (pornography), Pro Vita Advisors (direct and indirect participation and involvement in abortion) and Life Decisions International (indirect participation in abortion through corporate funding programs). TPL retains the right to change the ministries whose information it reviews, at its discretion. Page 45 For its services, TPL is paid an annual fee equal to 1.0% of the Fund's average daily net assets. This fee is subject to certain voluntary reductions in fees paid by the Fund. A portion of the advisory fee is paid by TPL to: (i) the Investment Manager for assisting in the selection of portfolio securities for the Fund and (ii) Covenant Financial Management ("CFM") as reimbursement for certain expenses related to the daily operations of the Fund performed by CFM. In addition, this fee also covers the cost of postage, materials and handling of the fulfillment function of processing prospectus requests as well as other sundry marketing and general administration expenses. The fee payable to and services provided by the Investment Manager are described under the heading "Investment Manager" below. The fee payable to and services provided by CFM are described at the end of this section. TPL's fee is higher than that charged by other funds, but is comparable to fees charged by funds with similar investment objectives. TPL has offices located at 1304 West Fairbanks Avenue, Winter Park, FL 32789. Arthur D. Ally, the President, Chairman and Trustee of the Fund, is President and a 70% shareholder of Covenant Funds, Inc. ("Covenant"), which is the managing general partner of TPL, located at 1304 West Fairbanks Avenue, Winter Park, FL 32789. Mr. Ally is also an individual general partner of TPL. Neither TPL nor its managing general partners previously has served as an advisor to any other registered investment company, but TPL has served as investment advisor exclusively to the Fund since the Fund's commencement of operations (March 21, 1994). Prior thereto, Mr. Ally had extensive securities industry experience having served as either financial consultant or branch manager for three securities firms over the previous seventeen years: Prudential Bache, Shearson Lehman Brothers and Investment Management & Research. Some or all of these firms may be used by the Investment Manager to execute portfolio trades for the Fund. Neither Mr. Ally nor any affiliated person to the Fund will receive any benefit from any of these transactions. TPL and CFM have entered into an agreement dated February 23, 1994, as amended April 23, 1996, whereby TPL pays CFM for certain overhead expenses related to the daily operations of the Fund that CFM carries out. These expenses include: salary of administrative personnel, cost of preparation of shareholder fulfillment kits, cost of phone lines and office space, and cost of postage and supplies. The annual fee is an amount to cover CFM's costs in providing services to TPL, payable by TPL on a monthly basis. Both parties have agreed that no profits will accrue to CFM as a result of this agreement. Arthur D. Ally is President and shareholder of 100% of CFM. Certain administrative and recordkeeping services that would otherwise be performed by the Advisor or its service providers may be performed by the Insurance Company. The Advisor or its service providers may make payments to the Insurance Company to defray the cost of providing these types of services. INVESTMENT MANAGER - ------------------ Awad & Associates (the "Investment Manager"), a division of Raymond James & Associates, Inc., serves as the investment manager pursuant to a sub-investment advisory agreement among the Fund, Timothy Partners, Ltd. and Awad & Associates, dated January 1, 1997. The Investment Manager has offices at 477 Madison Avenue, New York, New York 10022. The Investment Manager is a joint venture between James D. Awad, a twenty-nine year veteran of the investment management business, and Raymond James Financial, a diversified financial services firm traded on the NYSE. The Investment Manager has been retained by TPL pursuant to a sub-investment advisory agreement to assist in the selection and management of the Fund's investment securities and prepare the portfolio of securities of selected issuers with business practices that meet the objectives and policies of the Fund. TPL reviews the portfolio to insure Page 46 compliance with the Fund's ethical standards. The Investment Manager's investment policy committee, comprised of James D. Awad, Dan Veru and Carol Egan, is responsible for the day-to-day management of the Fund's portfolio. James Awad is the senior investment officer of the Investment Manager. Mr. Awad has been in the investment business part-time since 1965 and full-time since 1969, focusing on research and portfolio management. Prior to forming Awad & Associates, he was President of BMI Capital, a successful money management firm he founded. In addition, Mr. Awad managed assets at Neuberger & Berman, Channing Management and First Investment Corp. The Investment Manager managed approximately $960 million in assets at December 31, 1997 for clients on a separate account basis utilizing the same investment methodology that it will employ for the Fund. The Investment Manager effects portfolio transactions for the Fund. In this regard, the Investment Manager will be governed by the policies set forth under "Investment Objectives and Policies". For its services, the Investment Manager is paid an annual fee by TPL equal to 0.42% of the average daily net assets of the Trust with respect to the first $10 million in assets; 0.40% of the next $5 million in assets; 0.35% of the next $10 million in assets; and 0.25% of assets over $25 million. The Investment Manager currently serves as co-investment advisor to two other investment companies: Heritage Series Trust: Heritage Small Cap Stock Fund and the Calvert New Visions Small Cap Fund. At January 1, 1998, Awad & Associates managed $158 million in net assets of Heritage Small Cap Stock Fund and received an advisory fee of 0.50% of its average daily net assets with respect to the first $50 million in assets and 37.5% thereafter. As of the same date, Awad & Associates managed $90 million in net assets of the Calvert New Vision Small Cap Fund and received an advisory fee of 0.40% of its average daily net assets. INVESTMENT MANAGER'S HISTORICAL PERFORMANCE - ------------------------------------------- Set forth below are certain performance data provided by the Investment Manager relating to the composite of separately managed equity accounts of clients of the Investment Manager. These accounts have substantially similar investment objectives and policies as the Fund's and they are managed using substantially similar investment strategies and techniques as those employed by the Fund. It is important to note that these returns do not take into account the effects of the Fund's moral screening restrictions. The Investment Manager believes that its philosophy as a small capitalization, value-oriented investor would tend to eliminate from its investment portfolio the securities of companies directly involved in alcohol production, tobacco production or casino gambling, companies which would most likely have too large a capitalization and which would be much more mature and seasoned than the companies customarily acquired for the Investment Manager's core portfolio. Based upon the foregoing, the Investment Manager estimates that if the screening criteria that will be used in managing the Fund (using data available as of December 31,1996) had been applied with respect to the accounts included below, an insignificant percentage of the investments in the accounts at any one time over the 11-year period ended December 31, 1996 would have been prohibited investments, and the differential in performance would have been immaterial. It cannot be determined that future holdings of the Fund would be substantially identical to those in the otherwise similar accounts managed by the Investment Manager. These performance figures include the results of accounts exclusively managed by the Fund's portfolio manager, Jim Awad, while he was employed at a previous firm, BMI Capital, for the period from 1/1/86 through 3/12/92. These results are shown net of management fees and commissions. The results presented from 3/13/92 forward represent only those accounts managed exclusively by Page 47 Jim Awad at Awad & Associates through Raymond James & Associates, and these results are shown net of the highest wrap fee applicable to the accounts (which includes management fees and commissions). These figures are a time-weighted average for the entire period, all of which would not be duplicated in any individual account and would not necessarily result in the same return for the investors. Total operating expenses for the Variable Series are lower than the expenses of the Class A and Class B shares of The Timothy Plan. Further, the separately managed accounts are not subject to investment limitations, diversification requirements, and other restrictions imposed by the Investment Company Act of 1940, as amended and the Code; such conditions, if applicable, may have lowered the returns for the separately managed accounts. The performance does not reflect any charges, fees, and expenses imposed under the policies and annuity contracts. Such performance would in each case be lower if it reflected these charges, fees and expenses. See the contract form or disclosure document for the policy or annuity contract. The performance presented does not represent the historical performance of the Fund and is not indicative of the Fund's future performance. Source: All performance data was supplied by TPL and the Investment Manager. AVERAGE ANNUAL TOTAL RETURN ===========================
COMPOSITE PAST PERFORMANCE OF THROUGH PAST PERFORMANCE OF RUSSELL 2000 - ------- OF AWAD & ASSOCIATES INDEX AND BMI CAPITAL ----- --------------- 1997 25.7% 22.4% 1996 15.4% 16.5% 1995 45.7% 28.5% 1994 2.4% -1.9% 1993 10.3% 18.9% 1992 13.3% 18.4% 1991 39.8% 46.0% 1990 -13.2% -19.5% 1989 9.7% 16.2% 1988 26.0% 24.9% 1987 -5.4% -10.8% 1986 17.6% 4.0% ANNUALIZED RETURNS THROUGH DECEMBER 31, 1997 - --------------------------------------------- One Year 25.7% 22.4% Three Years 28.2% 22.3% Five Years 17.1% 16.4% Ten Years 16.3% 15.8%
Page 48 2: The annualized return is calculated from monthly data, allowing for compounding. The formula used is in accordance with the acceptable methods set forth by the Association for Investment Management Research, the Bank Administration Institute and the Investment Council Association of America. Market value of the accounts was derived from the sum of the accounts' total assets, including cash, cash equivalents, short-term investments and securities valued at current market prices. 3: The Russell 2000 Index is an unmanaged index of common stock prices comprised of the smallest 2000 stocks in the Russell 3000 Index, which is an annual ranking of 3000 common stocks by market capitalization. The Russell 2000 Index represents approximately 10% of the total market capitalization of the Russell 3000 Index. The Russell 2000 Index is generally considered representative of securities similar to those invested in by the Investment Manager for the purpose of the composite performance numbers set forth above. 4: The Investment Manager's average annual management fee while at BMI Capital over the period 1/1/82 - 3/12/92 was 1% or 100 basis points. During this period, fees on the Investment Manager's individual accounts ranged from 0.5% to 1% (50 basis points to 100 basis points). The Investment Manager's performance figures reported are net of commissions and management fees. 5: The Composite Past Performance of Awad & Associates reported in the preceding table for the period 3/13/92 -- 12/31/97 were based on a universe of "wrap fee" accounts managed for various broker/dealers which are coordinated through Raymond James & Associates. The total value of these accounts at 12/31/97 was approximately $197 million out of a total client base of $960 million. The performance figures in the table represent all accounts that were managed with investment strategies and objectives substantially similar to those of the Fund. The performance figures are shown net of the highest wrap fee applicable to the accounts (which includes all management fees and commissions paid to Raymond James & Associates). The performance figures reported are net of those wrap fees. UNDERWRITER - ----------- Timothy Partners, Ltd. ("TPL") 1304 West Fairbanks Avenue, Winter Park, Florida, was engaged pursuant to an agreement effective July 1, 1997 to act as underwriter for the Fund. The purpose of acting as underwriter is to facilitate the registration of shares of the Fund under state securities laws and to assist in the sale of shares. TPL also acts as investment advisor for the Fund. TPL is not compensated for providing underwriting services to the Fund. ADMINISTRATOR - ------------- Declaration Service Company ("DSC"), 555 North Lane, Suite 6160, Conshohocken, PA 19428, is the Fund's administrator pursuant to an Administration Services Agreement (the "Agreement") with the Fund dated May 1, 1998. The services DSC provides to the Fund include: considering and monitoring of any third parties furnishing services to the Fund; providing the necessary office space, equipment and personnel to perform administrative and clerical functions for the Fund; preparing, filing and distributing proxy Page 49 materials, periodic reports to shareholders, registration statements, and other documents; and responding to shareholder inquiries. Compensation for said services will be charged at $20,000. CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTING/PRICING AGENT - ----------------------------------------------------------- Star Bank, 425 Walnut Street, M.L. 6118, Cincinnati, OH 45202-1118, is custodian for the securities and cash of the Fund. DSC serves as the Fund's transfer agent. As transfer agent, it maintains the records of each shareholder's account, answers shareholder inquiries concerning accounts, processes purchases and redemptions of the Fund's shares, acts as dividend and distribution disbursing agent, and performs other shareholder service functions. Shareholder inquiries should be directed to the transfer agent at (800) 662-0201. DSC also performs certain accounting and pricing services for the Fund. This includes the daily calculation of the Fund's net asset value. EXPENSES - -------- The Fund is responsible for the payment of its expenses, other than those borne by TPL. These expenses may include, but are not limited to: (a) management fees; (b) the charges and expenses of the Fund's legal counsel and independent accountants; (c) brokers' commissions, mark-ups and mark-downs and any issue or transfer taxes chargeable to the Fund in connection with its securities transactions; (d) all taxes and corporate fees payable by the Fund to governmental agencies; (e) the fees of any trade association of which the Fund is a member; (f) the cost of stock certificates, if any, representing shares of the Fund; (g) amortization and reimbursements of the organization expenses of the Fund and the fees and expenses involved in registering and maintaining registration of the Fund and its shares with the U.S. Securities and Exchange Commission, and the preparation and printing of the Fund's registration statements and prospectuses for such purposes; (h) allocable communications expenses with respect to investor services and all expenses of shareholders and trustee meetings and of preparing, printing and mailing prospectuses and reports to shareholders; (I) litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund's business; (j) state filing fees; and (k) compensation for employees of the Fund. PURCHASES AND REDEMPTIONS OF SHARES Purchases and redemptions of shares may be made only by Insurance Company for its separate accounts at the direction of VA Contract owners. Please refer to the prospectus of your VA Contract for information on how to direct investments in or redemptions from the Fund and any fees that may apply. Generally, the Insurance Company places orders for shares based upon payments and withdrawal requests received from VA Contract owners during the day and places an order to purchase or redeem the net number of shares by the following morning. Orders are usually executed at the net asset value per share determined at the end of the business day that a payment or withdrawal request is received by the Insurance Company. There are no sales or redemption charges. However, certain sales or deferred sales charges and other charges may apply to your VA Contract. Those charges are disclosed in the separate account prospectus. The Trust reserves the right to suspend the offering of Fund shares, or to reject any specific purchase order. Page 50 Purchase orders for shares of the Fund which are received by the transfer agent in proper form prior to the close of regular trading hours on the NYSE (currently 4:00 p.m. Eastern time) on any day that the Fund calculates its net asset value, are priced according to the net asset value determined on that day. Purchase orders for shares of the Fund received after the close of the NYSE on a particular day are priced as of the time the net asset value per share is next determined. Redemption proceeds will normally be wired to the Insurance Company on the next business day after receipt of the redemption instructions by the Fund, but in no event later than 7 days following receipt of instructions. The Fund may suspend redemptions or postpone payments when the NYSE is closed or when trading is restricted for any reason (other than weekends or holidays) or under emergency circumstances as determined by the U.S. Securities and Exchange Commission. ADDITIONAL INFORMATION If the Trustees determine that it would be detrimental to the best interest of the remaining shareholders of the Fund to make payment in cash, the Fund may pay the redemption price in whole or in part by distribution in-kind of readily marketable securities, from the Fund, within certain limits prescribed by the U.S. Securities and Exchange Commission. Such securities will be valued on the basis of the procedures used to determine the net asset value at the time of the redemption. If shares are redeemed in-kind, the redeeming shareholder will incur brokerage costs in converting the assets into cash. SHARES OF BENEFICIAL INTEREST The beneficial interest of the Fund is divided into an unlimited number of shares ("Shares") with a par value of $0.001 each. There are no preemptive rights. Shares, when issued, will be fully paid and nonassessable. Fractional shares have proportional voting rights. Shares of the Fund do not have cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of Trustees can elect all of the Trustees if they choose to do so and, in such event, the holders of the remaining shares will not be able to elect any person to the Board of Trustees. DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund will declare and pay annual dividends to its shareholders of substantially all of its net investment income, if any, earned during the year from its investments, and the Fund will distribute net realized capital gains, if any, once anually. Expenses of the Fund, including the advisory fee, are accrued each day. Reinvestments of dividends and distributions in additional shares of the Fund will be made at the net asset value determined on the ex-date of the dividend or distribution. The Fund intends to qualify, as a regulated investment company under Subchapter M of the Internal Revenue Code (the "Code"). As such, the Fund will not be subject to federal income tax, or to any excise tax, to the extent its earnings are distributed in accordance with the timing requirements imposed by the Code and by meeting certain other requirements relating to the sources of its income Page 51 and diversification of its assets. The Fund also intends to comply with the diversification requirements of Section 817(h) of the Code for variable annuity contracts and variable life insurance policies so that the VA Contract owners should not be subject to federal tax on distributions of dividends and income from the Fund to the Participating Insurance Company separate accounts. VA Contract owners should review the prospectus for their VA Contract for information regarding the tax consequences to them of purchasing a contract or policy. Under current tax law, dividends or capital gain distributions from the Fund are not currently taxable when left to accumulate within a VA contract. Depending on the VA contract, withdrawals from the contracts may be subject to ordinary income tax and, in addition, to a 10% penalty tax on withdrawals before age 59 1/2 . The Fund intends to distribute substantially all of its net investment income and net capital gains. Dividends from net investment income or net short-term capital gains will be taxable to you as ordinary income, whether received in cash or in additional shares. Dividends from net investment income will generally qualify, in part, for the 70% corporate dividends received deduction, subject to certain holding period and debt financing restrictions imposed under the Code on the corporate investor claiming the deduction. The portion of the dividends so qualified depends on the aggregate qualifying dividend income received by the Fund from domestic (U.S.) sources. Distributions paid by the Fund from long-term capital gains are taxable to those investors who are subject to income tax as long-term capital gains, regardless of the length of time an investor has owned shares in the Fund. The Fund does not seek to realize any particular amount of capital gains during a year; rather, realized gains are a by-product of Fund management activities. Consequently, capital gains distributions may be expected to vary considerably from year to year. Also, for those investors subject to tax, if purchases of shares in the Fund are made shortly before the record date for a dividend or capital gains distribution, a portion of the investment will be returned as a taxable distribution. Dividends which are declared in October, November or December to shareholders of record in such a month but which, for operational reasons, may not be paid to the shareholder until the following January, will be treated for tax purposes as if paid by the Fund and received by the shareholder on December 31 of the calendar year in which they are declared. The sale of shares of the Fund is a taxable event and may result in a capital gain or loss to shareholders subject to tax. Capital gain or loss may be realized from an ordinary redemption of shares or an exchange of shares between two mutual funds (or two series of a mutual fund). Any loss incurred on sale or exchange of the Fund's shares, held for six months or less, will be treated as a long-term capital loss to the extent of capital gain dividends received with respect to such shares. In addition to federal taxes, shareholders may be subject to state and local taxes on distributions. Each year, the Fund will mail you information on the tax status of the Fund's dividends and distributions. Of course, shareholders who are not subject to tax on their income would not be required to pay tax on amounts distributed to them by the Fund. The tax discussion set forth above is included for general information only. Prospective investors should consult their own tax advisers concerning the federal, state, local or foreign tax consequences of an investment in the Fund. Page 52 DETERMINATION OF NET ASSET VALUE The price of the Fund's shares is the net asset value per share. Net asset value is determined by the Fund as of the close of regular trading on each day that the NYSE is open for unrestricted trading from Monday through Friday and on which there is a purchase or redemption of the Fund's share. The net asset value is determined by the Fund by dividing the value of the Fund's securities, plus any cash and other assets, less all liabilities, by the number of shares outstanding. Expenses and fees of the Fund, including the management fees, are accrued daily and taken into account for the purpose of determining the net asset value. Fund securities listed or traded on a securities exchange for which representative market quotations are available will be valued at the last quoted sales price on the security's principal exchange on that day. Listed securities not traded on an exchange that day, and other securities which are traded in the over-the-counter market, will be valued at the last reported bid price in the market on that day, if any. Securities for which market quotations are not readily available and all other assets will be valued at their respective fair market value as determined in good faith by, or under procedures established by, the Board of Trustees. In determining fair value, the Trustees may employ an independent pricing service. Money market securities with less than sixty days remaining to maturity when acquired by the Fund will be valued on an amortized cost basis by the Fund, excluding unrealized gains or losses thereon from the valuation. This is accomplished by valuing the security at cost and then assuming a constant amortization to maturity of any premium or discount. If the Fund acquires a money market security with more than sixty days remaining to its maturity, it will be valued at current market value until the 60th day prior to maturity, and will then be valued on an amortized cost basis based upon the value on such date, unless the Trustees determine during such 60-day period that this amortized cost value does not represent fair market value. PERFORMANCE From time to time the Fund may advertise performance data in connection with the total return for the appropriate VA Contract of the Insurance Company. Fund performance may be shown by presenting one or more performance measurements, including average total return and aggregate annual total return. Average annual return reflects the average percentage change per year in value of an investment in the Fund. Aggregate total return reflects the total percentage change over the stated period. Any fees charged by banks or their institutional investors directly to their customer accounts in connection with investments in the Fund will not be included in the Fund's calculations of total returns. The Fund may compare its investment performance with appropriate market indices such as the Russell 2000 Index and to appropriate mutual fund indices; and the Fund may advertise its ranking compared to other similar mutual funds as reported by industry analysts such as Lipper Analytical Page 53 Services, Inc. All data will be based on the Fund's past investment results and does not predict future performance. Investment performance, which will vary, is based on many factors, including market conditions and the composition of the investments in the Fund. Investment performance also often reflects the risk associated with the Fund's investment objectives and policies. These factors should be considered when comparing the Fund to other mutual funds and other investment vehicles. TOTAL RETURNS AND YIELDS QUOTED FOR THE FUND INCLUDE THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. BECAUSE SHARES OF THE FUND MAY BE PURCHASED ONLY THROUGH VA CONTRACTS, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF YOUR VA CONTRACT FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of the Fund's performance has the effect of increasing the performance quoted. You should bear in mind the effect of these charges when comparing the Fund's performance to that of other mutual funds. Further information about the performance of the Fund is included in the Fund's Semi-Annual Report dated June 30, 1997 and Annual Report, dated December 31, 1997, which may be obtained without charge by contacting the Fund at (800) TIM- PLAN. Shareholders may obtain current performance information about the Fund by calling (800) TIM-PLAN. Page 54 THIS PAGE INTENTIONALLY LEFT BLANK. Page 55 NOTES Page 56 INVESTMENT ADVISOR Timothy Partners, Ltd. 1304 West Fairbanks Avenue Winter Park, FL 32789 INVESTMENT MANAGER Awad & Associates 477 Madison Avenue New York, NY 10022 UNDERWRITER Timothy Partners, Ltd 1304 West Fairbanks Avenue Winter Park, FL 32789 SHAREHOLDER SERVICES Declaration Service Company 555 North Lane Suite 6160 Conshohocken, PA 19428 CUSTODIAN Star Bank 425 Walnut Street M.L. 6118 Cincinnati, OH 45202-1118 LEGAL COUNSEL Pepper Hamilton LLP 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103 AUDITORS Tait, Weller & Baker Eight Penn Center Suite 800 Philadelphia, PA 19103-2108 For Additional Information About The Timothy Plan, Please Call: (800) TIM-PLAN Visit The Timothy Plan web site on the Internet at: WWW.TIMOTHYPLAN.COM STATEMENT OF ADDITIONAL INFORMATION THE TIMOTHY PLAN THE TIMOTHY PLAN-CLASS A AND CLASS B AND THE TIMOTHY PLAN VARIABLE SERIES MAY 1, 1998 - -------------------------------------------------------------------------------- Timothy Partners, Ltd. 1304 West Fairbanks Avenue Winter Park, Florida 32789 (800) 846-7526 - -------------------------------------------------------------------------------- This Statement of Additional Information is in addition to and supplements the current Prospectuses of The Timothy Plan (the "Trust"), which currently consists of two separate investment series: THE TIMOTHY PLAN and THE TIMOTHY PLAN VARIABLE SERIES. THE TIMOTHY PLAN (the "Trust") is an open-end diversified investment company, currently offering two series of shares (collectively, the "Funds"). The Timothy Plan series (referred to herein as the "Timothy Fund") currently offers two classes of shares: Class A (formerly, Institutional Class) and Class B (formerly, Retail Class). The Timothy Plan Variable Series (referred to herein as the "Timothy Variable Fund") is a single class series of the Trust whose shares are only offered to insurance companies for the purpose of funding variable annuity contracts ("VA Contracts") offered through separate accounts of the Annuity Investors Life Insurance Company (the "Insurance Company"). - -------------------------------------------------------------------------------- THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION WITH THE TIMOTHY PLAN AND THE TIMOTHY PLAN VARIABLE SERIES PROSPECTUSES. COPIES OF THE PROSPECTUSES MAY BE OBTAINED FROM THE TRUST WITHOUT CHARGE BY WRITING THE TRUST AT 1304 WEST FAIRBANKS AVENUE, WINTER PARK, FLORIDA 32789 OR BY CALLING THE TRUST AT (800) 846-7526. RETAIN THIS STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE. - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page THE TIMOTHY PLAN - INVESTMENTS........................................ INVESTMENT RESTRICTIONS............................................... INVESTMENT ADVISOR.................................................... INVESTMENT MANAGER.................................................... UNDERWRITER........................................................... ADMINISTRATOR......................................................... ALLOCATION OF PORTFOLIO BROKERAGE..................................... PURCHASE OF SHARES.................................................... Tax-Deferred Retirement Plans.................................... REDEMPTIONS........................................................... OFFICERS AND TRUSTEES OF THE TRUST.................................... DISTRIBUTION PLANS.................................................... TAXATION.............................................................. GENERAL INFORMATION................................................... Audits and Reports............................................... Miscellaneous.................................................... PERFORMANCE........................................................... Comparisons and Advertisements................................... FINANCIAL STATEMENTS..................................................
Page 59 THE TIMOTHY PLAN - INVESTMENTS Each Fund seeks to achieve its objectives by making investments selected in accordance with that Fund's investment restrictions and policies. Each Fund will vary its investment strategy as described in that Fund's Prospectus to achieve its objectives. This Statement of Additional Information contains further information concerning the techniques and operations of the Funds, the securities in which they will invest, and the policies they will follow. THE TIMOTHY FUND issues two classes of shares (Class A and Class B) that invest in the same portfolio of securities. Class A and Class B shares differ with respect to sales structure and 12b-1 Plan expenses. THE TIMOTHY VARIABLE FUND issues only one class of shares and is intended to be a funding vehicle for variable annuity contracts ("VA Contracts") offered through separate accounts of Annuity Investors Life Insurance Company (the "Insurance Company"). Both Funds have a primary investment objective of long-term capital growth and a secondary objective of current income. The Funds seek to achieve their stated objectives by investing in securities issued by companies which, in the opinion of the Funds' Advisor, conduct business in accordance with the stated philosophy and principles of the Funds. The following information supplements the information provided in each Fund's Prospectus. COMMON STOCK Common stock is defined as shares of a corporation that entitle the holder to a pro rata share of the profits of the corporation, if any, without a preference over any other shareholder or class of shareholders, including holders of the corporation's preferred stock and other senior equity. Common stock usually carries with it the right to vote, and frequently, an exclusive right to do so. Holders of common stock also have the right to participate in the remaining assets of the corporation after all other claims, including those of debt securities and preferred stock, are paid. PREFERRED STOCK Generally, preferred stock receives dividends prior to distributions on common stock and usually has a priority of claim over common stockholders if the issuer of the stock is liquidated. Unlike common stock, preferred stock does not usually have voting rights; preferred stock, in some instances, is convertible into common stock. In order to be payable, dividends on preferred stock must be declared by the issuer's Board of Trustees. Dividends on the typical preferred stock are cumulative, causing dividends to accrue even if not declared by the Board of Trustees. There is, however, no assurance that dividends will be declared by the Board of Trustees of issuers of the preferred stocks in which the Funds invest. CONVERTIBLE SECURITIES Traditional convertible securities include corporate bonds, notes and preferred stocks that may be converted into or exchanged for common stock, and other securities that also provide an opportunity for equity participation. These securities are generally convertible either at a stated price or a stated rate (that is, for a specific number of shares of common stock or other security). As with other fixed income securities, the price of a convertible security to some extent varies inversely with interest rates. While providing a fixed-income stream (generally higher in yield than the income derivable from a common stock but lower than that afforded by a non-convertible debt security), a convertible security also affords the investor an opportunity, through its conversion feature, to participate in the capital appreciation of the common stock into which it is convertible. As the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the price of a convertible security tends to rise as a reflection of the value of the underlying common stock. To obtain such a higher yield, the Funds may be required to pay for a convertible security an amount in excess of the value of the underlying common stock. Common stock acquired by the Funds upon conversion of a convertible security will generally be held for so long as the advisor or investment manager anticipates such stock will provide the Funds with opportunities which are consistent with the Funds' investment objectives and policies. WARRANTS The Funds may invest in warrants, in addition to warrants acquired in units or attached to securities. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the issuer's capital stock at a set price for a specified period of time. AMERICAN DEPOSITORY RECEIPTS The Funds may make foreign investments through the purchase and sale of sponsored or unsponsored American Depository Receipts ("ADRs"). ADRs are receipts typically issued by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. The Funds may purchase ADRs whether they are "sponsored" or "unsponsored". "Sponsored" ADRs are issued jointly by the issuer of the underlying security and a depository. "Unsponsored" ADRs are issued without participation of the issuer of the deposited security. The Funds do not consider any ADRs purchased to be foreign. Holders of unsponsored ADRs generally bear all the costs of such facilities. The Page 60 depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights to the holders of such receipts in respect to the deposited securities. Therefore, there may not be a correlation between information concerning the issuer of the security and the market value of an unsponsored ADR. ADRs may result in a withholding tax by the foreign country of source which will have the effect of reducing the income distributable to shareholders. Because each Fund will not invest more than 50% of the value of its total assets in stock or securities issued by foreign corporations, it will be unable to pass through the foreign taxes that Fund pays (or is deemed to pay) to shareholders under the Internal Revenue Code of 1986, as amended (the "Code"). PORTFOLIO TURNOVER It is not the policy of the Funds to purchase or sell securities for short-term trading purposes, but the Funds may sell securities to recognize gains or avoid potential for loss. The Funds will, however, sell any portfolio security (without regard to the time it has been held) when the investment advisor believes that market conditions, credit-worthiness factors or general economic conditions warrant such a step. Each Fund presently estimates that its annualized portfolio turnover rate generally will not exceed a range of 50% to 75%, and may be lower than 50%, during most periods. The portfolio turnover rate for the Timothy Fund for the fiscal years ended December 31, 1996 and 1997 was 93.08% and 136.36%, respectively. As of December 31, 1997, the Timothy Variable Fund had not commenced operations and therefore, did not have any portfolio turnover to report. High portfolio turnover would involve additional transaction costs (such as brokerage commissions) which are borne by the Funds, or adverse tax effects. (See "Dividends, Distributions and Taxes" in each Fund's Prospectus.) INVESTMENT RESTRICTIONS In addition to those set forth in the Funds' current Prospectuses, the Funds have adopted the Investment Restrictions set forth below, which are fundamental policies of each Fund, and which cannot be changed without the approval of a majority of the outstanding voting securities of each Fund. As provided in the Investment Company Act of 1940, as amended (the "1940 Act"), a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (i) more than 50% of the outstanding shares, or (ii) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. These investment restrictions provide that each Fund will not: (1) issue senior securities; (2) engage in the underwriting of securities except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in disposing of a portfolio security; (3) purchase or sell real estate or interests therein, although it may purchase securities of issuers which engage in real estate operations; (4) invest for the purpose of exercising control or management of another company; (5) purchase oil, gas or other mineral leases, rights or royalty contracts or exploration or development programs, except that the Fund may invest in the securities of companies which invest in or sponsor such programs; (6) invest more than 25% of the value of the Fund's total assets in one particular industry, except for temporary defensive purposes; (7) make purchases of securities on "margin", or make short sales of securities, provided that the Fund may enter into futures contracts and related options and make initial and variation margin deposits in connection therewith; and (8) invest in securities of any open-end investment company, except that the Fund may purchase securities of money market mutual Funds, but such investments in money market mutual Funds may be made only in accordance with the limitations imposed by the 1940 Act and the rules thereunder, as amended. So long as percentage restrictions are observed by a Fund at the time it purchases any security, changes in values of particular Fund assets or the assets of the Fund as a whole will not cause a violation of any of the foregoing restrictions. INVESTMENT ADVISOR The Trust has entered into an advisory agreement with Timothy Partners, Ltd.(TPL), effective January 19, Page 61 1994, as amended August 28, 1995 and September 1, 1997, for the provision of investment advisory services on behalf of the Timothy Fund, subject to the supervision and direction of the Fund's Board of Trustees. Pursuant to the Investment Advisory Agreement, the Trust is obligated to pay TPL a monthly fee equal to an annual rate of 0.85% of the Timothy Fund's average daily net assets. This fee is higher than that charged by some funds, but is comparable to fees charged by funds with similar investment objectives. The Investment Advisory Agreement specifies that the advisory fee will be reduced to the extent necessary to comply with the most stringent limits prescribed by any state in which the Funds' shares are offered for sale. With respect to the Timothy Fund, for the period March 21, 1994 (commencement of operations) through December 31, 1994 and for the years ended December 31, 1995, 1996 and 1997, advisory fees of $7,938, $41,257, $78,848 and $142,990, respectively, were payable to TPL and TPL reimbursed the Timothy Fund $135,114, $189,534 $194,967, and $193,945, respectively. TPL has voluntarily undertaken to waive its advisory fee and reimburse expenses on behalf of the Timothy Fund to the extent normal operating expenses (including investment advisory fees but excluding interest, taxes, brokerage fees, commissions and extraordinary charges) exceed 1.35% of the Fund's average daily net assets. The Trust has entered into an advisory agreement with Timothy Partners, Ltd. (TPL), effective May 1, 1998 for the provision of investment advisory services on behalf of the Timothy Variable Fund, subject to the supervision and direction of the Fund's Board of Trustees. Pursuant to the Investment Advisory Agreement, the Trust is obligated to pay TPL a monthly fee equal to an annual rate of 1.00% of the Timothy Variable Fund's average daily net assets. This fee is higher than that charged by some funds, but is comparable to fees charged by funds with similar investment objectives. No advisory fee information is included for the Timothy Variable Fund since this Fund had not commenced operations as of December 31, 1997. TPL has voluntarily undertaken to waive its advisory fee and reimburse expenses on behalf of the Timothy Variable Fund to the extent normal operating expenses (including investment advisory fees but excluding interest, taxes, brokerage fees, commissions and extraordinary charges) exceed 1.35% of the Fund's average daily net assets. The Investment Advisory Agreement is initially effective for two years. The Investment Advisory Agreement may be renewed after its initial term only so long as such renewal and continuance are specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the Trust, and only if the terms of the renewal thereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties thereto or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Investment Advisory Agreement will terminate automatically in the event of its assignment. INVESTMENT MANAGER Pursuant to an agreement between TPL and Awad & Associates (the "Investment Manager"), dated January 1, 1997, as amended May 1, 1998 (the "Sub-Investment Advisory Agreement"), the Investment Manager provides advice and assistance to TPL in the selection of appropriate investments for the Funds, subject to the supervision and direction of the Funds' Board of Trustees. As compensation for its services, with respect to each Fund, the Investment Manager receives from TPL an annual fee at a rate equal to 0.42% of the first $10 million in assets of the Fund; 0.40% of the next $5 million in assets; 0.35% of the next $10 million in assets; and 0.25% of assets over $25 million. The Sub-Investment Advisory Agreement is initially effective for two years. The Agreement may be renewed by the parties after its initial term only so long as such renewal and continuance are specifically approved at least annually by the Board of Trustees or by vote of a majority of the outstanding voting securities of the Trust, and only if the terms of renewal thereof have been approved by the vote of a majority of the Trustees of the Trust who are not parties thereto or interested persons of any such party, cast in person at the meeting called for the purpose of voting on such approval. The Sub-Investment Advisory Agreement will terminate automatically in the event of its assignment. Prior to January 1, 1997, TPL paid Systematic Financial Management, L.P. for advice and assistance in the selection of appropriate investments for the Timothy Fund. For the period March 21, 1994 (commencement of operations) through December 31, 1994 and for the fiscal years ended December 31, 1995 and 1996, TPL paid Systematic Financial Management, L.P. sub-advisory fees of $3,969, $20,628 and $46,381, respectively. For the fiscal year ended December 31, 1997, TPL paid Awad & Associates $66,356 for sub-investment advisory services on behalf of the Timothy Fund. Page 62 UNDERWRITER Effective July 1, 1997, Timothy Partners, Ltd. (TPL), 1304 West Fairbanks Avenue, Winter Park, Florida 32789, acts as an underwriter of the Timothy Funds' shares for the purpose of facilitating the registration of shares of the Funds under state securities laws and to assist in sales of shares pursuant to an underwriting agreement (the "Underwriting Agreement") approved by the Fund's Trustees. TPL is not compensated for providing underwriting services to the Funds. In that regard, TPL has agreed at its own expense to qualify as a broker/dealer under all applicable federal or state laws in those states which the Funds shall from time to time identify to TPL as states in which it wishes to offer its shares for sale, in order that state registrations may be maintained by the Funds. TPL is a broker/dealer registered with the U.S. Securities and Exchange Commission and is a member in good standing of the National Association of Securities Dealers, Inc. The Funds shall continue to bear the expense of all filing or registration fees incurred in connection with the registration of shares under state securities laws. The Underwriting Agreement may be terminated by either party upon 60 days' prior written notice to the other party. ADMINISTRATOR Declaration Service Company, 555 North Lane, Suite 6160, Conshohocken, PA 19428, (the "Administrator"), provides certain services to the Trust pursuant to an Administrative Services Agreement. Under the Administrative Services Agreement, the Administrator: (1) coordinates with the Custodian and Transfer Agent and monitors the services they provide to the Funds; (2) coordinates with, and monitors, any third parties furnishing services to the Funds; (3) provides the Funds with necessary office space, telephones and other communications facilities and personnel competent to perform administrative and clerical functions; (4) supervises the maintenance by third parties of such books and records of the Funds as may be required by applicable federal or state law; (5) prepares or supervises the preparation by third parties of all federal, state and local tax returns and reports of the Funds required by applicable law; (6) prepares and, after approval by the Funds, files and arranges for the distribution of proxy materials and periodic reports to shareholders of the Funds as required by applicable law; (7) prepares and, after approval by the Funds, arranges for the filing of such registration statements and other documents with the Securities and Exchange Commission and other federal and state regulatory authorities as may be required by applicable law; (8) reviews and submits to the officers of the Funds for their approval invoices or other requests for payment of the Funds' expenses and instructs the Custodian to issue checks in payment thereof; and (9) takes such other action with respect to the Funds as may be necessary in the opinion of the Administrator to perform its duties under the agreement. Prior to May 1, 1998, FPS Services, Inc., 3200 Horizon Drive, King of Prussia, PA 19406, served as the Administrator. For the period March 21, 1994 (commencement of operations) through December 31, 1994 and for the fiscal years ended December 31, 1995, 1996 and 1997, the Trust paid $39,583, $54,297, $62,581 and $ 65,386, respectively, for Administration fees. ALLOCATION OF PORTFOLIO BROKERAGE The Investment Manager, when effecting the purchases and sales of portfolio securities for the account of the Funds, will seek execution of trades either (i) at the most favorable and competitive rate of commission charged by any broker, dealer or member of an exchange, or (ii) at a higher rate of commission charges if reasonable in relation to brokerage and research services provided to the Funds or the Investment Manager by such member, broker, or dealer. Such services may include, but are not limited to, any one or more of the following: information on the availability of securities for purchase or sale, statistical or factual information, or opinions pertaining to investments. The Funds' Investment Manager may use research and services provided to it by brokers and dealers in servicing all its clients; however, not all such services will be used by the Investment Manager in connection with the Funds. Brokerage may also be allocated to dealers in consideration of the each Fund's share distribution but only when execution and price are comparable to that offered by other brokers. For the fiscal years ended December 31, 1996 and 1997, the Timothy Fund incurred brokerage Page 63 commissions of $32,684 and $133,628, respectively. No information is provided for the Timothy Variable Fund as that Fund had not commenced operations as of December 31, 1997. TPL, through the Investment Manager, is responsible for making the Funds', portfolio decisions subject to instructions described in each Fund's Prospectus. The Board of Trustees may however impose limitations on the allocation of portfolio brokerage. Securities held by one Fund may also be held by the other Fund or other accounts for which TPL or the Investment Manager serves as an advisor, or held by TPL or the Investment Manager for their own accounts. If purchases or sales of securities for a Fund or other entities for which they act as investment advisor or for their advisory clients arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective entities and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of TPL or Investment Manager during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. On occasions when TPL or the Investment Manager deems the purchase or sale of a security to be in the best interests of one Fund as well as the other Fund or other accounts, they may to the extent permitted by applicable laws and regulations, but will not be obligated to, aggregate the securities to be sold or purchased for the Fund with those to be sold or purchased for the other Fund or accounts in order to obtain favorable execution and lower brokerage commissions. In that event, allocation of the securities purchased or sold, as well as the expenses incurred in the transaction, will be made by the Investment Manager in the manner it considers to be most equitable and consistent with its fiduciary obligations to the Funds and to such other accounts. In some cases this procedure may adversely affect the size of the position obtainable for a Fund. The Board of Trustees of the Funds periodically reviews the brokerage placement practices of the Investment Manager on behalf of the Funds, and reviews the prices and commissions, if any, paid by the Funds to determine if they were reasonable. The Investment Manager also may consider sales of the VA Contracts by a broker- dealer as a factor in the selection of broker-dealers to execute transactions for the Timothy Variable Fund. In addition, the Investment Manager may place portfolio trades for both Funds with its affiliated brokers, including Raymond James or its affiliates. As stated above, any such placement of trades will be subject to the ability of the affiliated broker-dealer to provide best execution, the Trust's procedures governing such affiliated trades and the Conduct Rules of the National Association of Securities Dealers, Inc. PURCHASE OF SHARES THE TIMOTHY FUND The shares of the Timothy Fund are continuously offered by the distributor. Orders will not be considered complete until receipt by the distributor of a completed account application form, and receipt by the Custodian of payment for the shares purchased. Once both are received, such orders will be confirmed at the next determined net asset value per share, plus the applicable sales load for Class A shares (based upon valuation procedures described in the Prospectus), as of the close of business of the business day on which the completed order is received, normally 4 o'clock p.m. Eastern Time. Completed orders received by the Fund after 4 o'clock p.m. will be confirmed at the next day's price. TAX-DEFERRED RETIREMENT PLANS (TIMOTHY FUND ONLY) Shares of the Timothy Fund are available to all types of tax-deferred retirement plans such as Individual Retirement Accounts (IRA's) , employer-sponsored defined contribution plans (including 401(k) plans) and tax-sheltered custodial accounts described in Section 403(b)(7) of the Internal Revenue Code. Qualified investors benefit from the tax-free compounding of income dividends and capital gains distributions. The Timothy Fund sponsors an IRA. Individuals, who are not active participants (and, when a joint return is filed, who do not have a spouse who is an active participant) in an employer maintained retirement plan are eligible to contribute on a deductible basis to an IRA account. The IRA deduction is also retained for individual taxpayers and married couples with adjusted gross incomes not in excess of certain specified limits. All individuals who have earned income may make nondeductible IRA contributions to the extent that they are not eligible for a deductible contribution. Income earned by an IRA account will continue to be tax deferred. A special IRA program is available for employers under which the employers may establish IRA accounts for their employees in lieu of establishing tax qualified retirement plans. Known as SEP-IRA's (Simplified Employee Pension-IRA), they free the employer of many of the record keeping requirements of establishing and maintaining a tax qualified retirement plan trust. Page 64 If you are entitled to receive a distribution from a qualified retirement plan, you may rollover all or part of that distribution into the Timothy Fund's IRA. Your rollover contribution is not subject to the limits on annual IRA contributions. You can continue to defer Federal income taxes on your contribution and on any income that is earned on that contribution. The Timothy Fund also sponsors 403(b)(7) Retirement Plans. The Fund offers a plan for use by schools, hospitals, and certain other tax-exempt organizations or associations who wish to use shares of the Timothy Fund as a funding medium for a retirement plan for their employees (the "403(b)(7) Plan"). Contributions are made to the 403(b)(7) Plan as a reduction to the employee's regular compensation. Such contributions, to the extent they do not exceed applicable limitations (including a generally applicable limitation of $9,500 per year), are excludable from the gross income of the employee for Federal Income tax purposes. The Timothy Fund also offers a Roth IRA. While contributions to a Roth IRA are not currently deductible, the amounts within the accounts accumulate tax-free and qualified distributions will not be included in a shareholder's taxable income. The contribution limit is $2,000 annually ($4,000 for joint returns) in aggregate with contributions to traditional IRAs. Certain income phaseouts apply. In all these Plans, distributions of net investment income and capital gains will be automatically reinvested. All the foregoing retirement plan options require special plan documents. Please call the Timothy Fund at (800) TIM-PLAN (or (800) 846-7526) to obtain information regarding the establishment of retirement plan accounts. In the case of IRAs and 403(b)(7) Plans, Semper Trust Company acts as the plan custodian and charges $12.00 per account in connection with plan establishment and maintenance. These fees are detailed in the plan documents. You should consult with your attorney or other tax advisor for specific advice prior to establishing a plan. TIMOTHY VARIABLE FUND The Timothy Variable Fund currently only offers its shares to the Annuity Investors Life Insurance Company, but may, in the future, offer its shares to other insurance company separate accounts. The separate accounts invest in shares of the Timothy Variable Fund in accordance with the allocation instructions received from holders of the VA contracts. Shares of the Timothy Variable Fund are sold at net asset value as described in that Fund's Prospectus. REDEMPTIONS The redemption price will be based upon the net asset value per share (subject to any applicable CDSC for Class B shares) next determined after receipt of the redemption request, provided it has been submitted in the manner described below. The redemption price may be more or less than your cost, depending upon the net asset value per share at the time of redemption. Class B shares of the Timothy Fund may be redeemed through certain brokers, financial institutions or service organizations, banks and bank trust departments who may charge the investor a transaction fee or other fee for their services at the time of redemption. Such fees would not otherwise be charged if the shares were purchased directly from the Timothy Fund. Payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Funds reserve the right to suspend the right of redemption, or to postpone the date of payment upon redemption beyond seven days: (i) for any period during which the NYSE is restricted, (ii) for any period during which an emergency exists as determined by the U.S. Securities and Exchange Commission as a result of which disposal of securities owned by the Funds is not reasonably predictable or it is not reasonably practicable for the Funds fairly to determine the value of its net assets, or (iii) for such other periods as the U.S. Securities and Exchange Commission may by order permit for the protection of shareholders of the Funds. Pursuant to the Trust's Agreement and Declaration of Trust, payment for shares redeemed may be made either in cash or in-kind, or partly in cash and partly in- kind. However, the Trust has elected, pursuant to Rule 18f-1 under the 1940 Act, to redeem its shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Trust, during any 90-day period for any one shareholder. Payments in excess of this limit will also be made wholly in cash unless the Board of Trustees believes that economic conditions exist which would make such a practice detrimental to the best interests of the Trust. Any portfolio securities paid or distributed in-kind would be valued as described under "Determination of Net Asset Value" in the each Fund's prospectus. In the event that an in-kind distribution is made, a shareholder may incur additional expenses, such as the payment of brokerage commissions, on the sale or other disposition of the securities received from the Funds. Page 65 In-kind payments need not constitute a cross-section of the a Fund's' portfolio. Where a shareholder has requested redemption of all or a part of the shareholder's investment, and where the Fund completes such redemption in-kind, the Fund will not recognize gain or loss for federal tax purposes, on the securities used to complete the redemption. The shareholder will recognize gain or loss equal to the difference between the fair market value of the securities received and the shareholder's basis in the Fund shares redeemed. OFFICERS AND TRUSTEES OF THE TRUST The Trustees and principal executive officers and their principal occupations for the past five years are listed below.
POSITION AND OFFICE HELD WITH PRINCIPAL OCCUPATION NAME AND ADDRESS AGE THE REGISTRANT DURING THE PAST FIVE YEARS - ---------------- --- ---------------- -------------------------- Arthur D. Ally * 56 President and President, Covenant Financial 1304 West Fairbanks Ave Trustee Management, Inc. (1990-present); General Winter Park, Florida Partner, Timothy Partners, Ltd. (1993-present) Joseph E. Boatwright * 67 Secretary and Consultant, Greater Orlando Baptist 1410 Hyde Park Drive Trustee Assoc. (Ministerial) (1996-present) Winter Park, Florida Retired; prior thereto Senior Pastor; Aloma Baptist Church (1970-1996) Wesley W. Pennington 67 Trustee President, Westwind Holdings, Inc. 442 Raymond Ave. (Developmental) (1997-present); President Longwood, Florida & Sole Shareholder, Weston, Inc., (fabric) treatment) (1979-1997); Secretary/ Treasurer, American Call to Greatness (publishing) (1994-1995); President & Sole Shareholder, Designer Services Group, Inc. (Furniture storage & delivery) (1980-1994) Jock M. Sneddon * 50 Trustee Physician, Florida Hospital 6001 Vineland Drive Center (present); prior thereto Orlando, Florida President and Director of Sneddon & Helmers M.D. P. A. (1976-1993) Philip B. Crosby * 71 Trustee Owner and Founder; Career IV, Inc. P.O. Box 1927 (lecturing),(1991-present);Founder, Philip Winter Park, FL Crosby, Associates, Inc. (1979-1991 and from 1997- present); Director, Security National Bank (banking) (1991-1995); Trustee, Rollins College (education) (1994-present) Daniel D. Busby, CPA 56 Trustee Partner, Busby, Keller & Co.; Consultant P.O. Box 50188 to Non-Profit Organizations (1997-present) Indianapolis, IN Scott Fehrenbacher 38 Trustee President, Institute for American 13621 171st N.E. Values Investing (1996-current); prior Redmond, WA thereto Stockbroker, Linsco/Private Ledger (1990-1996)
* These Trustees and officers are considered "interested persons" of the Funds within the meaning of Section 2(a)(19) of the 1940 Act. The Trustees and officers considered "interested persons" are so deemed by reason of their affiliation with the Funds' investment advisor and as a result of being a Trustee and/or officer of the Page 66 Funds. Mr. Ally is also considered an "interested person" because of his affiliation with TPL, the Fund's principal underwriter. The officers conduct and supervise the daily business operations of the Funds, while the Trustees, in addition to functions set forth under "Investment Advisor," "Investment Manager," and "Underwriter," review such actions and decide on general policy. Compensation to officers and Trustees of the Funds who are affiliated with TPL is paid by TPL, and not by the Fund. For the fiscal year ended December 31, 1997, the Timothy Fund did not pay compensation to any of its Trustees. In addition, no Trustee served on the Board of Directors of another investment company managed by TPL for the calendar year ended December 31, 1997. As of December 31, 1997, the Timothy Variable Fund had not commenced operations and therefore, no compensation was paid to its Board of Trustees. DISTRIBUTION PLANS (APPLICABLE ONLY TO THE TIMOTHY FUND) As noted in the Timothy Fund's Prospectus, each Class of the Timothy Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (collectively, the "Plans") whereby the Fund may pay up to a maximum of 0.25% for Class A shares and up to a maximum of 1.00% for Class B shares (of which, up to 0.25% may be service fees to be paid by each respective class of shares to TPL, dealers and others, for providing personal service and/or maintaining shareholder accounts) per annum of its average daily net assets for expenses incurred by the Underwriter in the distribution of the Timothy Fund's shares. The fees are paid on a monthly basis, based on the Fund's average daily net assets attributable to such class of shares. Pursuant to the Plans, TPL, as underwriter, is entitled to a reimbursement each month (up to the maximum of 0.25% for Class A shares and 1.00% for Class B shares per annum of average net assets of the Timothy Fund) for the actual expenses incurred in the distribution and promotion of the Timothy Fund's shares, including but not limited to, printing of prospectuses and reports used for sales purposes, preparation and printing of sales literature and related expenses, advertisements, and other distribution-related expenses as well as any distribution or service fees paid to securities dealers or others who have executed a dealer agreement with the underwriter. Any expense of distribution in excess of 0.25% for Class A shares or 1.00% for Class B shares per annum will be borne by the TPL without any reimbursement or payment by the Timothy Fund. Prior to July 1, 1997, FPS Broker Services, Inc. (FPSB) served as the Fund's sole underwriter. For the period ended December 31, 1994 and fiscal year ended December 31, 1995, the Fund reimbursed FPSB $1,985 and $11,606, respectively, for distribution costs incurred by the Fund. For the fiscal year ended December 31, 1996, the Fund reimbursed FPSB $36,568 for distribution costs incurred as follows: $7,063 for printing; $18,465 compensation to underwriters and distribution services; $11,040 compensation to dealers for Class B shares (formerly, the Retail Class). For the period January 1, 1997 to June 30, 1997, the Timothy Fund reimbursed FPSB $32,518 for distribution costs incurred as follows: $10,505 compensation to dealers for Class A shares and $19,423 as compensation to dealers for Class B shares and $2,590 for servicing the Class B shareholder accounts. Effective July 1, 1997, Timothy Partners, Ltd. (TPL), serves as the Timothy Funds' sole underwriter. For the period July 1, 1997 to December 31, 1997, the Fund reimbursed TPL $58,563 for distribution-related expenses as follows: $12,917 compensation to delaers for Class A shares and $34, 074 compensation to dealers for Class B shares and $10,572 for servicng the Class B shareholder accounts. The Plans also provide that to the extent that the Timothy Fund, TPL, the Investment Manager, or other parties on behalf of the Fund, TPL, the Investment Manager makes payments that are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares issued by the Fund within the context of Rule 12b-1, such payments shall be deemed to be made pursuant to the Plans. In no event shall the payments made under the Plans, plus any other payments deemed to be made pursuant to the Plans, exceed the amount permitted to be paid pursuant to the Conduct Rules of the National Association of Securities Dealers, Inc., Article III, Section 26(d)(4). The Board of Trustees has determined that a consistent cash flow resulting from the sale of new shares is necessary and appropriate to meet redemptions and to take advantage of buying opportunities without having to make unwarranted liquidations of portfolio securities. The Board therefore believes that it will likely benefit the Fund to have monies available for the direct distribution activities of the Underwriter in promoting the sale of the Fund's shares, and to avoid any uncertainties as to whether other payments constitute distribution expenses on behalf of the Fund. The Board of Trustees, including the non- interested Trustees, has concluded Page 67 that in the exercise of their reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Plans will benefit the Fund and its shareholders. The Plans have been approved by the Fund's Board of Trustees, including all of the Trustees who are non-interested persons as defined in the 1940 Act. The Plans must be renewed annually by the Fund's Board of Trustees, including a majority of the Trustees who are non-interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plans. The votes must be cast in person at a meeting called for that purpose. It is also required that the selection and nomination of such Trustees be done by the non- interested Trustees. The Plans and any related agreements may be terminated at any time, without any penalty: 1) by vote of a majority of the non-interested Trustees on not more than 60 days' written notice, 2) by the Underwriter on not more than 60 days' written notice, 3) by vote of a majority of the Fund's outstanding shares, on 60 days' written notice, and 4) automatically by any act that terminates the Underwriting Agreement with the underwriter. The underwriter or any dealer or other firm may also terminate their respective agreements at any time upon written notice. The Plans and any related agreement may not be amended to increase materially the amounts to be spent for distribution expenses without approval by a majority of the Fund's outstanding shares, and all material amendments to the Plans or any related agreements shall be approved by a vote of the non-interested Trustees, cast in person at a meeting called for the purpose of voting on any such amendment. The underwriter is required to report in writing to the Board of Trustees of the Fund, at least quarterly, on the amounts and purpose of any payment made under the Plans, as well as to furnish the Board with such other information as may reasonably be requested in order to enable the Board to make an informed determination of whether the Plans should be continued. TAXATION The both Funds intend to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In order to so qualify, a Fund must, among other things (i) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (ii) distribute at least 90% of its dividends, interest and certain other taxable income each year; and (iii) at the end of each fiscal quarter maintain at least 50% of the value of its total assets in cash, government securities, securities of other regulated investment companies, and other securities of issuers which represent, with respect to each issuer, no more than 5% of the value of a Fund's total assets and 10% of the outstanding voting securities of such issuer, and with no more than 25% of its assets invested in the securities (other than those of the government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar or related trades and businesses. To the extent each Fund qualifies for treatment as a regulated investment company, it will not be subject to federal income tax on income and net capital gains paid to shareholders in the form of dividends or capital gains distributions. As noted in its Prospectus, the Timothy Variable Fund must, and intends to, comply with the diversification requirements imposed by Section 817(h) of the Code and the regulations thereunder. These requirements, which are in addition to the diversification requirements mentioned above, place certain limitations on the proportion of the Timothy Variable Fund's assets that may be represented by any single investment (which includes all securities of the same issuer). For purposes of Section 817(h), all securities of the same issuer, all interests in the same real property project, and all interests in the same commodity are treated as a single investment. In addition, each U.S. Government agency or instrumentality is treated as a separate issuer, while the securities of a particular foreign government and its agencies, instrumentalities and political subdivisions all will be considered securities issued by the same issuer. For information concerning the consequences of failure to meet the requirements of Section 817(h), refer to the respective prospectuses for the VA Contracts. An excise tax at the rate of 4% will be imposed on the excess, if any, of the Funds' "required distributions" over actual distributions in any calendar year. Generally, the "required distribution" is 98% of a Fund's ordinary income for the calendar year plus 98% of its capital gain net income recognized during the one-year period ending on December 31 plus undistributed amounts from prior years. The Funds intend to make distributions Page 68 sufficient to avoid imposition of the excise tax. Distributions declared by the Funds during October, November or December to shareholders of record during such month and paid by January 31 of the following year will be taxable to shareholders in the calendar year in which they are declared, rather than the calendar year in which they are received. Shareholders will be subject to federal income taxes on distributions made by the Fund whether received in cash or additional shares of the Funds. Distributions of net investment income and net short-term capital gains, if any, will be taxable to shareholders as ordinary income. Distributions of net long- term capital gains, if any, will be taxable to shareholders as long-term capital gains, without regard to how long a shareholder has held shares of the Fund. A loss on the sale of 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 dividend paid to the shareholder with respect to such shares. Dividends eligible for designation under the dividends received deduction and paid by the Funds may qualify in part for the 70% dividends received deduction for corporations provided, however, that those shares have been held for at least 45 days. The Funds will notify shareholders each year of the amount of dividends and distributions, including the amount of any distribution of long-term capital gains, and the portion of its dividends which may qualify for the 70% deduction. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations currently in effect. For the complete provisions, reference should be made to the pertinent Code sections and regulations. The Code and regulations are subject to change by legislative or administrative action at any time, and retroactively. Each Class of shares of the Timothy Fund will share proportionately in the investment income and expenses of that Fund, except that each class will incur different distribution expenses. Dividends and distributions also may be subject to state and local taxes. Shareholders are urged to consult their tax advisors regarding specific questions as to federal, state and local taxes. GENERAL INFORMATION AUDITS AND REPORTS - ------------------ The accounts of the Trust are audited each year by Tait, Weller & Baker of Philadelphia, PA, independent certified public accountants whose selection must be ratified annually by the Board of Trustees. Shareholders receive semi-annual and annual reports of the Funds, including the annual audited financial statements and a list of securities owned. MISCELLANEOUS - ------------- As of April 2, 1998, the officers and Trustees, as a group, owned benefically 19,419.952 outstanding voting shares of Class A shares and 559.977 of Class B shares, which in the aggregate amounts to 19,979.929 shares of the Trust. As of April 2, 1998, no one owned of record or exercised voting control over 5% of the outstanding shares of the Class A or Class B shares of the Trust. PERFORMANCE Performance information for the Class A and Class B shares of the Timothy Fund and the Timothy Variable Fund will vary due to the effect of expense ratios on the performance calculations. TOTAL RETURNS AND YIELDS QUOTED FOR THE TIMOTHY VARIABLE FUND INCLUDE THE FUND'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. BECAUSE SHARES OF THE TIMOTHY VARIABLE FUND MAY BE PURCHASED ONLY THROUGH VARIABLE ANNUITY CONTRACTS, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF YOUR VA CONTRACT FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges from quotations of the Timothy Variable Fund's performance has the effect of increasing the Page 69 performance quoted. You should bear in mind the effect of these charges when comparing the Timothy Variable Fund'd performance to that of other mutual funds. Current yield and total return may be quoted in advertisements, shareholder reports or other communications to shareholders. Yield is the ratio of income per share derived from the Funds investments to a current maximum offering price expressed in terms of percent. The yield is quoted on the basis of earnings after expenses have been deducted. Total return is the total of all income and capital gains paid to shareholders, assuming reinvestment of all distributions, plus (or minus) the change in the value of the original investment, expressed as a percentage of the purchase price. Occasionally, the Funds may include their distribution rates in advertisements. The distribution rate is the amount of distributions per share made by a Fund over a 12-month period divided by the current maximum offering price. U.S. Securities and Exchange Commission ("Commission") rules require the use of standardized performance quotations or, alternatively, that every non- standardized performance quotation furnished by the Funds be accompanied by certain standardized performance information computed as required by the Commission. Current yield and total return quotations used by the Funds are based on the standardized methods of computing performance mandated by the Commission. An explanation of those and other methods used by the Funds to compute or express performance follows. As the following formula indicates, the average annual total return is determined by multiplying a hypothetical initial purchase order of $1,000 by the average annual compound rate of return (including capital appreciation/depreciation and dividends and distributions paid and reinvested) for the stated period less any fees charged to all shareholder accounts and annualizing the result. The calculation assumes the maximum sales load is deducted from the initial $1,000 purchase order and that all dividends and distributions are reinvested at the net asset value on the reinvestment dates during the period. The quotation assumes the account was completely redeemed at the end of each one, five and ten-year period and assumes the deduction of all applicable charges and fees. According to the Commission formula: P(1+T)/n/ = ERV where: P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the one, five or ten-year periods, determined at the end of the one, five or ten-year periods (or fractional portion thereof). Based on the foregoing calculations, the average annual total return for Class A shares, for the period March 21, 1994 (commencement of operations) through December 31, 1996, and for the one year period ended December 31, 1996 and December 31, 1997, was 4.01%, 6.40% and 14.67%, respectively. The average annual total return for Class B shares, for the period August 25, 1995 (commencement of operations) through December 31, 1996 and for the one year period ended December 31, 1996, and December 31, 1997 was 5.46%, 6.98% and 15.50%, respectively. For the periods March 21, 1994 through December 31, 1997 and the three year period ended December 31, 1997 the average annual total return for the Class A was 8.34% and 11.68%, respectively. For the period August 25, 1995 through December 31, 1997 the average annual total return for Class B was 12.27%. Regardless of the method used, past performance is not necessarily indicative of future results, but is an indication of the return to shareholders only for the limited historical period used. No performance information has been provided for the Timothy Variable Fund since it had not commenced operations as of December 31, 1997. COMPARISONS AND ADVERTISEMENTS - ------------------------------ To help investors better evaluate how an investment in the Funds might satisfy their investment objective, advertisements regarding the Funds may discuss total return for the Funds as reported by various financial publications. Advertisements may also compare total return to total return as reported by other investments, indices, and averages. The following publications, indices, and averages may be used: Lipper Mutual Fund Performance Analysis; Lipper Mutual Fund Indices; CDA Weisenberger; and Page 70 Morningstar From time to time, the Funds may also include in sales literature and advertising (including press releases) TPL comments on current news items, organizations which violate the Funds' philosophy (and are screened out as unacceptable portfolio holdings), channels of distribution and organizations which endorse the Fund as consistent with their philosophy of investment. FINANCIAL STATEMENTS The Timothy Fund Financial Statements, including the notes thereto, dated December 31, 1997, which have been audited by Tait, Weller & Baker, are incorporated by reference from the Timothy Fund's 1997 Annual Report to Shareholders. There are no Financial Statements for the Timothy Variable Fund since that Fund had not commenced operations as of December 31, 1997. Page 71 INVESTMENT ADVISOR Timothy Partners, Ltd. 1304 West Fairbanks Avenue Winter Park, FL 32789 INVESTMENT MANAGER Awad & Associates 477 Madison Avenue New York, New York 10022 UNDERWRITER Timothy Partners, Ltd. 1304 West Fairbanks Ave. Winter Park, FL 32789 SHAREHOLDER SERVICES Declaration Service Company 555 North Lane Suite 6160 Conshohocken, PA 19428 CUSTODIAN Star Bank 425 Walnut Street M.L. 6118 Cincinnati, OH 45202-1118 LEGAL COUNSEL Pepper Hamilton LLP 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103 AUDITORS Tait, Weller & Baker Eight Penn Center Suite 800 Philadelphia, PA 19103-2108 POST EFFECTIVE AMENDMENT NO. 8 TO REGISTRATION STATEMENT NO. 33-73248 ON FORM N-1A PART C. OTHER INFORMATION. ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. - -------------------------------------------- (A) Financial Statements: (1) The Financial Highlights for the Timothy Plan Series of the Trust are included in Part A of this Registration Statement on Form N-1A. The following audited Financial Statements are incorporated by reference in Part B of this Registration Statement on Form N1-A for the period ended December 31, 1997 (audited): (i) Schedule of Investments at December 31, 1997. (ii) Statement of Assets and Liabilities at December 31, 1997. (iii) Statement of Operations for the period ended December 31, 1997. (iv) Statement of Changes in Net Assets for the year ended December 31, 1997. (v) Notes to Financial Statements. (vi) Financial Highlights. (vii) Report of Independent Accountants (2) The financial statements of The Timothy Plan Variable Series are not available as the Series did not commence operations as of December 31, 1997. (3) All required financial statements are included or incorporated by reference in Parts A and B hereof. All other financial statements and schedules are inapplicable. (B) Exhibits: (1) Agreement and Declaration of Trust is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99(1) to Item 24 as electronically filed on April 26, 1996. (2) By-Laws of Registrant dated January 19, 1994 is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99(2) to Item 24 as electronically filed on April 26, 1996. (3) None (4) Specimen Copy of each security to be issued by the registrant: Registrant proposes to maintain investments as non-certificated book entry shares. (5) Investment Advisory Agreements: (a)(i) Form of Amendment to Investment Advisory Agreement dated May 1, 1998 between the Registrant and Timothy Partners, Ltd. is filed herewith electronically. (a)(ii) Form of Investment Advisory Agreement dated May 1, 1998, between the Registrant, on behalf of The Timothy Plan Variable Series, and Timothy Partners, Ltd. dated May 1, 1998 is filed herewith electronically. (a)(iii) Amendment dated March 12, 1997 to Investment Advisory Agreement dated January 19, 1994 between Registrant and Timothy Partners, Ltd. is incorporated herein by reference to Post-Effective No. 6 as Exhibit No. 99(5)(a)(i) to Item 24 as electronically filed on July 18, 1997. (a)(iv) Amendment dated August 28, 1995 to Investment Advisory Agreement dated January 19, 1994 between Registrant and Timothy Partners, Ltd. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99(5)(a)(i) to Item 24 as electronically filed on April 26, 1996. (a)(v) Investment Advisory Agreement dated January 19, 1994 between Registrant and Timothy Partners, Ltd. is incorporated herein by reference to Post-Effective Amendment No. 4 as Exhibit No. 99(5)(a)(ii) to Item 24 as electronically filed on April 26, 1996. (b)(i) Form of Amendment to Sub-Investment Advisory Agreement dated May 1, 1998 between Timothy Partners, Ltd., Awad & Associates and the Registrant is filed herewith electronically. (b)(ii) Sub-Investment Advisory Agreement dated January 1, 1997 among Timothy Partners, Ltd., Awad & Associates and the Registrant is incorporated by reference to Post-Effective Amendment No. 5 as Exhibit 99(5)(b)(i). (6) (a) DISTRIBUTION AGREEMENTS: (a)(i) Underwriting Agreement dated July 1, 1997 between the Registrant and Timothy Partners, Ltd. is incorporated herein by reference to Post-Effective No. 6 as Exhibit No. 99(6)(a)(i) to Item 24 as electronically filed on July 18, 1997. (b) None Page 73 (7) None (8) CUSTODIAN AGREEMENT (a) Custodian Agreement between Registrant and The Bank of New York, dated November 11, 1994 is incorporated herein by reference to Post Effective Amendment No. 5. (9) OTHER MATERIAL CONTRACTS: (a)(i) Form of Amendment dated May 1,1998 to Shareholder Services Agreement dated January 19, 1994 between the Registrant and FPS Services, Inc., is filed herewith electronically. (a)(ii) Amendment dated February 23, 1996, to Shareholder Services Agreement dated January 19, 1994 between Registrant and FPS Services, Inc. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (9)(a)(i) to Item 24 as electronically filed on April 26, 1996. (a)(iii) Shareholder Services Agreement dated January 19, 1994 between Registrant and FPS Services, Inc. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (9)(a)(ii) to Item 24 as electronically filed on April 26, 1997. (b)(i) Form of Amendment dated May 1, 1998 to Administration Agreement dated January 19, 1994 between the Registrant and FPS Services, Inc. is filed herewith electronically. (b)(ii) Amendment dated February 23, 1996, to Administration Agreement dated January 19, 1994 between Registrant and FPS Services, Inc. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (9)(b)(i) to Item 24 as electronically filed on April 26, 1996. (b)(iii) Administration Agreement dated January 19, 1994 between Registrant and FPS Services, Inc. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (9)(b)(ii) to Item 24 as electronically filed on April 26, 1996. (c)(i) Form of Amendment dated May 1, 1998 to Accounting Series Agreement dated February 23, 1996 between the Registrant and FPS Services, Inc., is filed herewith electronically. (c)(ii) Accounting Services Agreement dated February 23, 1996 between Registrant and FPS Services, Inc. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (9)(c) to Item 24 as electronically filed on April 26, 1996. (d)(i) Amendment dated May 1, 1996 to Administrative Agreement dated January 19, 1994 between Registrant and Covenant Financial Management, Inc. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (9)(d)(i) to Item 24 as electronically filed on April 26, 1996. (d)(ii) Administrative Agreement dated January 19, 1994 between Registrant and Covenant Financial Management, Inc. is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (9)(d)(ii) to Item 24 as electronically filed on April 26, 1996. (e)(i) Form of Participation Agreement dated May 1, 1998 among the Registrant on behalf of The Timothy Plan Variable Series, Annuity Investors Life Insurance Company and Timothy Partners, Ltd. is filed herewith electronically. (10) OPINION AND CONSENT OF COUNSEL AS TO THE LEGALITY OF THE SECURITIES TO BE ISSUED: (a) To be filed by the Registrant on a yearly basis along with its Rule 24f-2 Notice. (11) CONSENTS (a) Consent of Tait, Weller & Baker is filed herewith electronically. (12) None. (13) LETTERS OF UNDERSTANDING RELATING TO INITIAL CAPITAL: (a) Investment letters between the Registrant and Phillis B. Crosby, Michael J. Demaray, Thomas J. Snyder, William R. Cadle, Bernice I. Cradle, Mary A. Gibson, Delbert E. Rich, Gwynn M. Reel, Charles E. Davis, Gregory Tighe and Frank Salerno are incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (13) to Item 24 as electronically filed on April 26, 1996. (14) MODEL PLANS: (a) Form of 403(b)(7) Retirement Plan is incorporated herein by reference to exhibit 99(14)(a) of Post-Effective No. 5. (b) Form of Individual Retirement Account (I.R.A.) is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (14)(b) to Item 24 as electronically filed on April 26, 1996. (15) PLANS UNDER 12b-1: (a)(i) Addendum dated July 1, 1997 on behalf of Class A shares is incorporated herein by reference to Post-Effective No. 6 as Exhibit No.99(15)(a)(i) to Item 24 as electronically filed on July 18, 1997. (a)(ii) Distribution Plan dated February 10, 1996, on behalf of Institutional Class shares is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (15)(a) to Item 24 as electronically filed on April 26, 1996. (b)(i) Distribution Plan dated September 22, 1997 on behalf of Class B shares is incorporated herein by Page 74 reference to Post-Effective No. 6 as Exhibit No. 99(15)(b)(i) to Item 24 as electronically filed on July 18, 1997 filed herewith. (b)(ii) Addendum dated July 1, 1997 on behalf of Class B shares is incorporated herein by reference to Post-Effective No. 6 as Exhibit No. 99(15)(b)(ii) to Item 24 as electronically filed on July 18, 1997. (b)(iii) Distribution Plan dated February 10, 1996, on behalf of the Retail shares is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (15)(b) to Item 24 as electronically filed on April 26, 1996. (c) Shareholder Services Agreement dated January 1, 1996 between Timothy Partners, Ltd. and FPS Broker Services, Inc. on behalf of the Institutional Class shares is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (15)(c) to Item 24 as electronically filed on April 26, 1996. (d) Shareholder Services Agreement dated January 1, 1996 between Timothy Partners, Ltd. and FPS Broker Services, Inc. on behalf of the Retail Class shares is incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (15)(d) to Item 24 as electronically filed on April 26, 1996. (16) Schedule of Computations of Performance Quotations incorporated herein by reference to Post Effective Amendment No. 4 as Exhibit No. 99 (16) to Item 24 as electronically filed on April 26, 1996. (18) Multiple Class Plan is incorporated herein by reference to Post-Effective No. 6 as Exhibit No. 99(18) to Item 24 as electronically filed on July 18, 1997. (19) Powers of Attorney are incorporated herein by reference to Post-Effective No. 5 as Exhibit No. 99(19) to Item 24 as electronically filed on February 27, 1997 and on behalf of Scott Fehrenbacher incorporated herein by reference to Post-Effective No. 6 as Exhibit No. 99(19) to Item 24 as electronically filed on July 18, 1997. (27) Financial Data Schedule is filed herewith electronically. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. - ----------------------------------------------------------------------- None. ITEM 26. NUMBER OF HOLDERS OF SECURITIES. - -----------------------------------------
Number of Record Holders TITLE OF CLASS as of January 29, 1998 -------------- Class A Common Stock, 1209 par value $0.001 per share Class B Common Stock, 1184 par value $0.001 per share
ITEM 27. INDEMNIFICATION. - -------------------------- Under the terms of the Delaware Business Trust Act and the Registrant's Agreement and Declaration of Trust and By-Laws, no officer or Trustee of the Fund shall have any liability to the Fund or its shareholders for damages, except to the extent such limitation of liability is precluded by Delaware law, the Agreement and Declaration of Trust, or the By-Laws. The Delaware Business Trust Act, section 3817, permits a business trust to indemnify any Trustee, beneficial owner, or other person from and against any claims and demands whatsoever. Section 3803 protects a Trustee, when acting in such capacity, from liability to any person other than the business trust or beneficial owner for any act, omission, or obligation of the business trust or any Trustee thereof, except as otherwise provided in the Agreement and Declaration of Trust. The Agreement and Declaration of Trust provides that the Trustees shall not be liable for any neglect or wrong-doing of any officer, agent, employee, manager or underwriter of the Fund, nor shall any Trustee be responsible for the act or By-Laws, the Fund may indemnify to the fullest extent each Trustee and officer of the Fund acting in such capacity, except each Trustee and officer of the Fund acting in such capacity, except as otherwise provided in the Agreement and Declaration of Trust. The Agreement and Declaration of Trust provides that the Trustees shall not be liable for any neglect or wrong-doing of any officer, agent, employee, manager or underwriter of the Fund, nor shall any Trustee be responsible for the act or omission of any other Trustee. Subject to the provisions of; the By-Laws, the Fund may indemnify to the fullest extent each Trustee and officer of the Fund acting in such capacity, except that no provision in the Agreement and Declaration of Trust shall be effective to protect or purport to protect and indemnify any Trustee or officer of the Fund from or against any liability to the Fund or any shareholder to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Page 75 The By-Laws provide indemnification for each Trustee and officer who is a party or is threatened to be made a party to any proceeding, by reason of service in such capacity, to the fullest extent, if it is determined that Trustee or officer acted in good faith and reasonably believed: (a) in the case of conduct in his official capacity as an agent of the Fund, that his conduct was in the Fund's best interests and (b) in all other cases, that his conduct was at least not opposed to the Fund's best interests and (c) in the case of a criminal proceeding, that he had no reasonable cause to believe the conduct of that person was unlawful. However, there shall be no indemnification for any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of the Trustee's or officer's office. Further, no indemnification shall be made: (a) In respect of any proceeding as to which any Trustee or officer of the Fund shall have been adjudged to be liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person's official capacity; or (b) In respect of any proceeding as to which any Trustee or officer of the Fund shall have been adjudged to be liable in the performance of that person's duty to the Fund, unless and only to the extent that the court in which that action was brought shall determine upon application that in view of all the relevant circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; however, in such case, indemnification with respect to any proceeding by or in the right of the Fund or in which liability shall have been adjudged by reason of the disabling conduct set forth in the preceding paragraph shall be limited to expenses; or (c) Of amounts paid in settling or otherwise disposing of a proceeding, with or without court approval, or of expenses incurred in defending a proceeding which is settled or otherwise disposed of without court approval, unless the required court approval set forth in the By-Laws is obtained. In any event, the Fund shall indemnify each officer and Trustee against reasonable expenses incurred in connection with the successful defense of any proceeding to which each such officer or Trustee is a party by reason of service in such Capacity, provided that the Board of Trustees, including a majority who are disinterested, non-party Trustees, also determines that such officer or Trustee was not liable by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of his or her duties or office. The Fund shall advance to each officer and Trustee who is made a party to the proceeding by reason of service in such capacity the expenses incurred by such person in connection therewith, if (a) the officer or Trustee affirms in writing that his good faith belief that he has met the standard of conduct necessary for indemnification, and gives a written undertaking to repay the amount of advance if it is ultimately determined that he has not met those requirements, and (b) a determination that the facts then known to those making the determination would not preclude indemnification. The Trustees and officers of the Fund are entitled and empowered under the Declaration of Trust and By-Laws, to the fullest extent permitted by law, to purchase errors and omissions liability insurance with assets of the Fund, whether or not the fund would have the power to indemnify him against such liability under the Declaration of Trust or By-Laws. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to Trustees, officers, the underwriter or control persons of the Registrant pursuant to the foregoing provisions, the Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. See also Item 32. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF ADVISOR. - ---------------------------------------------------- Timothy Partners, Ltd. ("TPL") serves as investment advisor of the Fund. The following persons serving as directors or officers of TPL have held the following positions with TPL for the past two years.
Position and Positions with Name and Offices with Offices with Business Address Timothy Partners, Ltd. the Registrant - ---------------- ---------------------- -------------- Arthur D. Ally President of Covenant President and Fund, Inc.; Managing Trustee General Partner of Timothy Partners, Ltd. and Individual General Partner of Timothy Partners, Ltd.
Covenant Financial Management, Inc. is a marketing/consulting firm owned by Arthur Ally that will render consulting advise to TPL with regard to marketing plans to be employed to target potential investor groups that might be interested in investing in the Fund because of its investment objectives and criteria. Page 76 ITEM 29. PRINCIPAL UNDERWRITER. - ------------------------------- (a) Timothy Partners, Ltd. (TPL) is the principal underwriter for the Registrants securities and currently acts as underwriter for the Registrant only. (b) The table below sets forth certain information as to the Underwriter's Directors, Officers and Control Persons:
Name and Position and Offices Positions and Offices Business Address with Underwriter with the Registrant - ---------------- ------------------------ --------------------- Arthur D. Ally President of Covenant President and 1304 West Fairbanks Avenue Fund, Inc.; Managing Trustee Winter Park, Florida 32789 General Partner of Timothy Partners, Ltd. and Individual General Partner of Timothy Partners, Ltd.
(c) Not applicable. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS. - ------------------------------------------- Each account, book or other document required to be maintained by Section 31(a) of the 1940 Act and Rules 17 CFR 270.31a-1 to 31a-3 promulgated thereunder, is maintained by the Fund at 1304 West Fairbanks Avenue, Winter Park, Florida 32789, except for those maintained by the Fund's Custodian, The Bank of New York, 48 Wall Street, New York, New York 10286, and the Fund's Administrator, Transfer, Redemption and Dividend Disbursing Agent and Accounting Services Agent, FPS Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903. ITEM 31. MANAGEMENT SERVICES. - ------------------------------ Not applicable. ITEM 32. UNDERTAKINGS. - ----------------------- (a) Inapplicable. (b) The Registrant undertakes to file a Post-Effective Amendment including the financial statements of The Timothy Plan Variable Series, which need not be certified, within four to six months of commencement of operations. (c) The Registrant hereby undertakes to furnish each person to whom a Prospectus is delivered with a copy of the respective latest annual report to shareholders, upon request and without charge. (d) The Registrant hereby undertakes to promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any Trustee when requested in writing to do so by the record holders of not less than 10 percent of the Registrant's outstanding shares and to assist its shareholders in accordance with the requirements of Section 16(c) of the Investment Company Act of 1940, as amended relating to shareholder communications. Page 77 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, the Registrant hereby certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment No. 8 to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 7 to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in Winter Park, State of Florida, on the 17th day of April, 1998. THE TIMOTHY PLAN By: /s/ Arthur D. Ally ------------------------------------- Arthur D. Ally, President & Trustee Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 8 to the Registrant's Registration Statement has been signed below by the following persons in the capacities indicated.
Signature Title Date - --------- ----- ---- /s/ Arthur D. Ally* - ---------------------------- President and Trustee April 16, 1998 /s/ Joseph E. Boatwright* - ---------------------------- Secretary and Trustee April 16, 1998 /s/ Wesley Pennington* - ---------------------------- Treasurer and Trustee April 16, 1998 /s/ Scott Fehrenbacher - ---------------------------- Trustee April 16, 1998 /s/ Jock M. Sneddon* - ---------------------------- Trustee April 16, 1998 /s/ Philip B. Crosby* - ---------------------------- Trustee April 16, 1998 /s/ Daniel D. Busby* - ---------------------------- Trustee April 16, 1998
*By: /s/ Gerald J. Holland ------------------------------------- Gerald J. Holland, as Attorney-in-Fact & Agent, pursuant to Power of Attorney Page 78 INDEX TO EXHIBITS ON FORM N-1A EXHIBIT 99B9(c)(i) Form of Participation Agreement 99B11(a) Auditors Consent 99B27(a) Financial Data Schedule- Class A 99B27(b) Financial Data Schedule- Class B Page 79 EX-99.B9.CI 2 FORM OF PARTICIPATION AGREEMENT Exhibit 99B9.(c)(i) Participation Agreement THIS AGREEMENT is made as of May 1, 1998, by and among Annuity Investors Life Insurance Company ("Company"), on its own behalf and on behalf of each separate account of the Company set forth on Exhibit A-1 to this Agreement as it may be amended from time to time (collectively, "Account"), The Timothy Plan Variable Series ("Fund") on its own behalf and on behalf of the portfolios listed on Exhibit A to this Agreement as it may be amended from time to time ("Portfolios"), and Timothy Partners, Ltd. (the "Advisor" and "Distributor"), who serves as both advisor and distributor for The Timothy Plan Variable Series (each, a "Party" and collectively, the "Parties"). WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares of the Fund, on behalf of the Account to fund the variable annuity contracts that use the Fund as an underlying investment medium (the "Contracts"); WHEREAS, the Company, Adviser and Distributor desires to facilitate the purchase and redemption of shares of the Fund by the Company for the Account through one account in the Fund (an "Omnibus Account") to be maintained of record by the Company, subject to the terms and conditions of this Agreement; WHEREAS, the Company desires to provide administrative services and functions (the "Services") for purchasers of Contracts ("Owners") on the terms and conditions set forth herein; WHEREAS, the Company has registered or will register certain variable life insurance policies and/or variable annuity contracts under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, the Company has registered or will register the Account as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Company desires to utilize the Fund and/or one or more Portfolios as an investment vehicle of the Account. NOW, THEREFORE, in consideration of the mutual promises set forth herein, the Company, Fund, Adviser and Distributor agree as follows: 1. PERFORMANCE OF SERVICES. Company agrees to perform the administrative functions and services specified in Exhibit B attached hereto with respect to the shares of the Fund included in the Account. 2. THE OMNIBUS ACCOUNTS. 2:1 The Omnibus Account will be opened based upon the information contained in Exhibit C hereto: In connection with the Omnibus Account, Company represents and warrants that it is authorized to act on behalf of each Owner effecting transactions in the Omnibus Account and that the information specified on Exhibit C hereto is correct. 2:2 The Fund shall designate the Omnibus Account with an account number. This account number will be the means of identification when the Parties are transacting in the Omnibus Account. The assets in the Account are segregated from the Company's own assets. The Adviser agrees to cause the Omnibus Account to be kept open on the Fund's books, as applicable, regardless of a lack of activity or small position size except to the extent the Company takes specific action to close an Omnibus Account or to the extent the Fund's prospectus reserves the right to close accounts which are inactive or of a small position size. In the latter two cases, the Adviser will give prior notice to the Company before closing an Omnibus Account. 2.3 The Company agrees to provide Adviser such information as Adviser or Distributor may reasonably request concerning Owners as may be necessary or advisable to enable Company and Distributor to comply with applicable laws, including state "Blue Sky" laws relating to the sales of shares of the Fund to the Accounts. 3. FUND SHARES TRANSACTIONS. 3:1 IN GENERAL. Shares of the Fund shall be sold on behalf of the Fund by Distributor and purchased by Company for the Account and' indirectly for the appropriate subaccount thereof at the net asset value next computed after receipt by Distributor of each order of the Company or its designee, in accordance with the provisions of this Agreement, the then current prospectus of the Fund, and the Contracts. The Board of Directors of the Fund ("Directors") may refuse to sell shares of the applicable Fund to any person, or suspend or terminate the offering of shares of the Fund if such action is required by law or by regulatory authorities having jurisdiction. Company agrees to purchase and redeem the shares of the Fund in accordance with the provisions of this Agreement, of the Contract and of the then current prospectus for the Contract and Fund. Except as necessary to implement transactions as specified in the Contracts or as initiated by the Owners, or as otherwise permitted by state or federal laws or regulations, Company shall not redeem shares of Fund attributable to the contract. 3.2 PURCHASE AND REDEMPTION ORDERS. On each day that the Fund is open for business (a "Business Day"), the Company shall aggregate and calculate the net purchase or redemption order resulting from investment in and redemptions under the Contracts for shares of the Fund that it received prior to the close of trading on the New York Stock Exchange (the "NYSE") (i.e. 4:00 p.m., Eastern time, unless the NYSE closes at an earlier time in which case such earlier time shall apply) and communicate to Distributor, by telephone or facsimile (or by such other means as the Parties hereto may agree to in writing), the net aggregate purchase or redemption order (if any) for the Omnibus Account for such Business Day (such Business Day is sometimes referred to herein as the "Trade Date"). The Company will communicate such orders to Distributor prior to 9:00 a.m., Eastern Time, on the next Business Day following the Trade Date. All trades communicated to Distributor by the foregoing deadline shall be treated by Distributor as if they were received by Distributor prior to the close of trading on the Trade Date. 3.3 SETTLEMENT OF TRANSACTIONS. (a) PURCHASES. Company will wire, or arrange for the wire of the purchase price of each purchase order to the custodian for the Fund in accordance with written instructions provided by Distributor to the Company so that either (1) such funds are received by the custodian for the Fund prior to 1:00 p.m., Eastern time, on the next Business Day following the Trade Date, or (2) Distributor is provided with a Federal Funds wire system reference number prior to such 1:00 p.m. deadline evidencing the entry of the wire transfer of the purchase price to the applicable custodian into the Federal Funds wire system prior to such time. Company agrees that if it fails to provide funds to the Fund's custodian by the close of business on the next Business Day following the Trade Date, then, at the option of Distributor, (i) the transaction may be canceled, or (ii) the transaction may be processed at the next-determined net asset value for the applicable Fund after purchase order funds are received. In such event, the Company shall indemnity and hold harmless Distributor, Adviser, and the Fund from any liabilities, costs and damages either may suffer as a result of such failure. (b) REDEMPTIONS. The Adviser will use its best efforts to cause to be transmitted to such custodial account as Company shall direct in writing, the proceeds of all redemption orders placed by Company by 9:00 a.m., Eastern time, on the Business Day immediately following the Trade Date, by wire transfer on that Business Day. Should Company need to extend the settlement on a trade, it will contact Adviser to discuss the extension. For purposes of determining the length of settlement, Adviser agrees to treat the Account no less favorably than other shareholders of the Fund. Each wire transfer of redemption proceeds shall indicate, on the Federal Funds wire 2 system, the amount thereof attributable to the Fund; provided, however, that if the number of entries would be too great to be transmitted through the Federal Funds wire system, the Adviser shall, on the day the wire is sent, fax such entries to Company or, if possible, send via direct or indirect systems access until otherwise directed by the Company in writing. (c) AUTHORIZED PERSONS. The following persons are each duly authorized to act on behalf of the Company and the Account under this Agreement. The Fund, Adviser and Distributor are entitled to conclusively rely on verbal or written instructions that Adviser or Distributor reasonably believes were originated by any one of said persons. The Company shall inform Adviser and Distributor of additions to or subtractions from this list of authorized persons pursuant to Section 13, hereof: Lynn Laswell Laura Lally John Burress Anniece Griece Brian Sponaugle Todd Gayhart Debbie Plummer 3.4 BOOK ENTRY ONLY. Issuance and transfer of shares of the Fund will be by book entry only. Stock certificates will not be issued to the Company or the Account. Shares of the Fund ordered from Distributor will he recorded in the appropriate book entry title for the Account. 3.5 DISTRIBUTION INFORMATION. The Adviser or Distributor shall provide the Company with all distribution announcement information as soon as it is announced by the Fund. The distribution information shall set forth, as applicable, ex-date, record date, payable date, distribution rate per share, record date share balances, cash and reinvested payment amounts and all other information reasonably requested by the Company. Where possible, the Adviser or Distributor shall provide the Company with direct or indirect systems access to the Adviser's systems for obtaining such distribution information. 3.6 REINVESTMENT. All dividends and capital gains distributions will be automatically reinvested on the payable date in additional shares of the Fund at net asset value in accordance with the Fund's then current prospectus. 3.7 PRICING INFORMATION. Distributor shall use its best efforts to furnish to the Company prior to 7:00 p.m., Eastern time, on each Business Day the Fund's closing net asset value for that day, and if appropriate, the daily accrual for interest rate factor, (mil rate). Such information shall be communicated via fax, or indirect or direct systems access acceptable to the Company. 3.8 PRICE ERRORS. (a) In the event adjustments are required to correct any error in the computation of the net asset value of shares of the Fund, the Fund or Adviser shall promptly notify Company after discovering the need for those adjustments which result in a reimbursement to an Account in accordance with such Fund's then current policies on reimbursement. Notification may be made orally or via direct or indirect systems access. Any such notification shall be promptly followed by a letter written on Fund or Adviser letterhead and shall state for each day for which an error occurred the incorrect price, the correct price, and, to the extent communicated to the Fund's shareholder, the reason for the price change. Fund and Adviser agree that Company may send this writing, or derivation thereof (so long as such derivation is approved in advance by Fund or Adviser, which approval shall not be unreasonably withheld) to Owners that are affected by the price change. (b) If the Account received amounts in excess of the amounts to which it otherwise would have been entitled prior to an adjustment for an error, Company, when requested by Fund or Adviser, will use its best efforts to collect such excess amounts from the Account. In no event, however, shall Company be liable to Fund or Adviser 3 for any such amounts. (c) If an adjustment is to be made in accordance with subsection (a) above to correct an error which has caused the Account to receive an amount less than that to which it is entitled, Fund or Adviser shall make all necessary adjustments (within the parameters specified in subsection (a)) to the number of shares owned in the Account and distribute to the Company the amount of such underpayment for credit to the Account. 3.9 AGENCY. Distributor hereby appoints the Company as its agent for the limited purpose of accepting purchase and redemption instructions pursuant to Sections 3.1,3.2 and 3.3.. 3.10 QUARTERLY REPORTS. Adviser agrees to provide Company a statement of Fund assets as soon as practicable and in any event within 30 days after the end of each fiscal year quarter, and a statement certifying the compliance by the Fund during that fiscal quarter with the diversification requirements and qualification as a regulated investment company. In the event of a breach of Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Treasury Regulation 1.8 i 7-5. 4. PROXY SOLICITATIONS AND VOTING. The Company shall, at its expense, distribute or arrange for the distribution of all proxy materials furnished by the Fund to the Account and shall: (i) solicit voting instructions from Owners; (ii) vote the Fund shares in accordance with instructions received from Owners; and (iii) vote the Fund shares for which no instructions have been received, as well as shares attributable to it, in the same proportion as Fund shares for which instructions have been received from Owners, so long as and to the extent that the Securities and Exchange Commission (the "SEC") continues to interpret the 1940 Act, to require pass-through voting privileges for various contract owners. The Company and its agents will not recommend action in connection with, or oppose or interfere with, the solicitation of proxies for the Fund shares held for Owners. 5. CUSTOMER COMMUNICATIONS. 5.1 PROSPECTUSES. "The Adviser or Distributor, at its expense, will provide the Company with as many printed copies of the current prospectus(es) for the Fund and/or Portfolios as the Company may reasonably request for distribution to existing or prospective Owners, and/or, at the Company's request, a single camera ready copy of each such prospectus, which the Company will print at its expense, and/or, at the Company's request, a single digital copy of each such prospectus, which the Company will reproduce in digital format at its expense. The Company will distribute the Fund and/or Portfolio prospectus(es) to existing and prospective Owners at its expense." 5.2 SHAREHOLDER MATERIALS. The Adviser and Distributor shall, as applicable, provide in bulk to the Company or its authorized representative, at a single address and at no expense to the Company, the following shareholder communications materials prepared for circulation to Owners in quantities requested by the Company which are sufficient to allow mailing thereof by the Company and, to the extent required by applicable law, to all Owners: proxy or information statements, annual reports, semi-annual reports, and all updated prospectuses, supplements and amendments thereof. Neither the Fund, the Advisor nor Distributor shall be responsible for the cost of distributing such materials to Owners. 6. REPRESENTATIONS AND WARRANTIES. 6.1 THE COMPANY REPRESENTS AND WARRANTS THAT: (a) It is an insurance company duly organized and in good standing under the laws of the State of Ohio and that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account and that the Company 4 has and will maintain the capacity to issue all Contracts that may be sold; and that it is and will remain duly registered, licensed, qualified and in good standing to sell the Contracts in all the jurisdictions in which such Contracts are to be offered or sold; (b) It is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations hereunder in compliance in all material respects with any applicable state and federal laws; (c) The Contracts are and will be registered under the 1933 Act, and are and will be registered and qualified for sale in the states where so required; and the Account is and will be registered as a unit investment trust in accordance with the 1940 Act and shall be a segregated investment account for the Contracts; (d) The Contracts are currently treated as annuity contracts, under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the Company will maintain such treatment and will notify Adviser, Distributor and Fund promptly upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future; (e) It is registered as a transfer agent pursuant to Section 17A of the Securities Exchange Act of 1934, as amended (the "1934 Act") unless it is not required to be registered as such. (f) The arrangements provided for in this Agreement will be disclosed to the Owners; and (g) It or its subsidiary is registered as a broker-dealer under the 1934 Act and any applicable state securities laws, including as a result of entering into and performing the Services set forth in this Agreement, unless it is not required to be registered as such. 6.2 The Fund represents and warrants that Fund shares sold pursuant to this Agreement are and will be registered under the 1933 Act and the Fund is and will be registered as a registered investment company under the Investment Company Act of 1940, in each case, except to the extent the Company is so notified in writing. 6.3 DISTRIBUTOR REPRESENTS AND WARRANTS THAT: (a) It is and will be a member in good standing of the NASD and is and will be registered as a broker-dealer with the SEC; and (b) It will sell and distribute Fund shares in accordance with all applicable state and federal laws and regulations. 6.4 ADVISER REPRESENTS AND WARRANTS THAT: (a) It will cause each Fund to invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable annuity contracts under the Code and the regulations issued thereunder, and that each Fund will comply with Section 817(h) of the Code as amended from time to time and with all applicable regulations promulgated thereunder; (b) It is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations hereunder in compliance in all material respects with any applicable state and federal laws; and 6.5 EACH OF THE PARTIES HERETO REPRESENTS AND WARRANTS TO THE OTHERS THAT: 5 (a) It has full power and authority under applicable law and has taken all action necessary, to enter into and perform this Agreement and the person executing this Agreement on its behalf is duly authorized and empowered to execute and deliver this Agreement; (b) This Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms and it shall comply in all material respects with all laws, rules and regulations applicable to it by virtue of entering into this Agreement; (c) Except for the effectiveness of the Registration Statement filed by the Fund under the 1933 Act and 1940 Act, no consent or authorization of, filing with, or other act by or in respect of any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement. (d) The execution, performance and delivery of this Agreement will not result in it violating any applicable law or breaching or otherwise impairing any of its contractual obligations; (e) Each Party hereto is entitled to rely on any written records or instructions provided to it by another Party; and (f) Its directors, officers, employees. and investment advisers, and other individuals/entities dealing with the money or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the amount required by the applicable rules of the National Association of Securities Dealers, Inc. ("NASD") and the federal securities laws, which bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 7. SALES MATERIAL AND INFORMATION. 7.1 NASD FILINGS. The Company shall promptly inform Distributor as to the status of all sales literature filings pertaining to the Fund and shall promptly notify Distributor of all approvals or disapprovals of sales literature filings with the NASD. For purposes of this Section 7, the phrase "sales literature or other promotional material" shall be construed in accordance with all applicable securities laws and regulations. 7.2 COMPANY REPRESENTATIONS. The Company shall not make any material representations concerning the Adviser, the Distributor or the Fund other than the information or representations contained in: (a) a registration statement of the Fund or prospectus of the Fund, as amended or supplemented from time to time; (b) published reports or statements of the Fund which are in the public domain or approved by Distributor or the Fund; or (c) sales literature or, other promotional material of the Fund. 7.3 THE ADVISOR. DISTRIBUTOR AND FUND REPRESENTATIONS. None of Adviser, Distributor or the Fund shall make any material representations concerning the Company other than the information or representations contained in: (a) a registration statement or prospectus for the Contracts, as amended or supplemented from time to time; (b) published reports or statements of the Contracts or the Account which are in the public domain or are approved by the Company; or (c) sales literature or other promotional material of the Company. 7.4 TRADEMARKS ETC. Except to the extent required by applicable law, no Party shall use any other Party's names, logos, trademarks or service marks, whether registered or unregistered, without the prior consent of such Party. 7.5 INFORMATION FROM DISTRIBUTOR AND ADVISER. Upon request, Distributor or Adviser will provide to Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, solicitations for voting 6 instructions, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Fund, in final form as filed with the SEC, NASD and other regulatory authorities. 7.6 INFORMATION FROM COMPANY. Company will provide to Distributor at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters and all amendments to any of the above, that relate to the Fund and the Contracts, in final form as filed with the SEC, NASD and other regulatory authorities. 7.7 REVIEW OF MARKETING MATERIALS. If so requested by Company, the Adviser or Distributor will use its best efforts to review sales literature and other marketing materials prepared by Company which relate to the Fund, the Adviser or Distributor for factual accuracy as to such entities, provided that the Adviser or Distributor is provided at least five (5) Business Days to review such materials. Neither the Adviser nor Distributor will review such materials for compliance with applicable laws. Company shall provide the Adviser with copies of all sales literature and other marketing materials which refer to the Fund, the Company or Distributor within five (5) Business Days after their first use, regardless of whether the Adviser or Distributor has previously reviewed such materials. If so requested by the Adviser or Distributor, Company shall cease to use any sales literature or marketing materials which refer to the Fund, the Adviser or Distributor that the Adviser or Distributor determines to be inaccurate, misleading or otherwise unacceptable. 8. FEES AND EXPENSES. 8.1 FUND REGISTRATION EXPENSES. Fund or Distributor shall bear the cost of registration and qualification of Fund shares; preparation and filing of Fund prospectuses and registration statements, proxy materials and reports; preparation of all other statements and notices relating to the Fund or Distributor required by any federal or state law; payment of all applicable fees, including, without limitation, any fees due under Rule 24f-2 of the 1940 Act, relating to the Fund; and all taxes on the issuance or transfer of Fund shares on the Fund's records. 8.2 CONTRACT REGISTRATION EXPENSES. The Company shall bear the expenses for the costs of preparation and filing of the Company's prospectus and registration statement with respect to the Contracts; preparation of all other statements and notices relating to the Account or the Contracts required by any federal or state law; expenses for the solicitation and sale of the Contracts including all costs of printing and distributing all copies of advertisements, prospectuses, Statements of Additional Information, proxy materials, and reports to Owners or potential purchasers of the Contracts as required by applicable state and federal law; payment of all applicable fees relating to the Contracts; all costs of drafting, filing and obtaining approvals of the Contracts in the various states under applicable insurance laws; filing of annual reports on form N-SAR, and all other costs associated with ongoing compliance with all such laws and its obligations hereunder. 9. INDEMNIFICATION. 9.1 INDEMNIFICATION BY COMPANY. (a) Company agrees to indemnify and hold harmless the Fund, Adviser and Distributor and each of their directors, officers, employees and agents, and each person, if any, who controls any of them within the meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.1) from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Company), and expenses (including reasonable legal fees and expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or 7 otherwise (collectively, hereinafter "Losses"), insofar as such Losses: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus or sales literature for the Contracts or contained in the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this paragraph 9.1(a) shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with written information furnished to Company by or on behalf of the Fund, Distributor or Adviser for use in the registration statement or prospectus for the Contracts or in the Contracts (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of, or as a result of, statements or representations or wrongful conduct of Company or its agents, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Fund or any amendment thereof or supplement thereto, or the omission or alleged omission to State therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon written information furnished to the Fund, Adviser or Distributor or on behalf of Company; or (iv) arise out of, or as a result of, any failure by Company or persons under its control to provide the Services and furnish the materials contemplated under the terms of this Agreement; or (v) arise out of, or result from, any material breach of any representation or warranty made by Company or persons under its control in this Agreement or arise out of or result from any other material breach of this Agreement by Company or persons under its control: as limited by and in accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or (vi) arise out of, or as a result of, adherence by Adviser or Distributor to instructions that it reasonably believes were originated by persons specified in Section 32(c), hereof This indemnification provision is in addition to any liability, which the Company may otherwise have. (b) Company shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. (c) Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served 8 upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Company of any such claim shall not relieve Company from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the Indemnifying Party of the commencement thereof, the Indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the Indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the Indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the Indemnifying Party. The Indemnifying Party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld (d) The Indemnified Parties will promptly notify Company of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of Fund shares or the Contracts or the operation of the Fund. 9.2 INDEMNIFICATION BY ADVISER AND DISTRIBUTOR. (a) Adviser and Distributor agrees to indemnify and hold harmless Company and each of its directors, officers, employees and agents and each person, if any, who controls Company within the meaning of Section 15 of the 1933 Act ("Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.2) against any and all Losses to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such Losses: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Section 9.2(a) shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with written information furnished to the Fund, Adviser or Distributor by or on behalf of Company for use in the registration statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of, or as a result of, statements or representations or wrongful conduct of Adviser or Distributor or persons under its control, with respect to the sale or distribution of Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon written information furnished to Company by or on behalf of Adviser or Distributor; or 9 (iv) arise out of, or as a result of, any failure by Adviser or Distributor or persons under its control to provide the services and furnish the materials contemplated under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation or warranty made by Adviser or Distributor or persons under its control in this Agreement or arise out of or result from any other material breach of this Agreement by Adviser or Distributor or persons under its control; as limited by and in accordance with the provisions of Sections 9.2(b) and 9.2(c) hereof. This indemnification provision is in addition to any liability which Adviser and Distributor may otherwise have. (b) Adviser and Distributor shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to Company. (c) Adviser and Distributor shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Adviser and Distribution in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Adviser and Distributor of any such claim shall not relieve Adviser and Distributor from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the Indemnifying Party of the commencement thereof, the Indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the Indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the Indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the Indemnifying Party. The Indemnifying Party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld. (d) The Indemnified Parties will promptly notify Adviser and Distributor of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of the Contracts or the operation of the Account. 10. POTENTIAL CONFLICTS. 10.1 MONITORING BY DIRECTORS FOR CONFLICTS OF INTEREST. The Directors of each Fund will monitor the Fund for any potential or existing material irreconcilable conflict of interest between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter 10 ruling, no-action or interpretive letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the Fund are being managed; (e) a difference in voting instructions given by variable annuity contract owners; or (f) a decision by Company to disregard the voting instructions of Owners. The Directors shall promptly inform the company, in writing, if they determine that an irreconcilable material conflict exists and the implications thereof. 10.2 MONITORING BY THE COMPANY FOR CONFLICTS OF INTEREST. The Company will promptly notify the Directors, in writing, of any potential or existing material irreconcilable conflicts of interest, as described in Section 10.1 above, of which it is aware. The Company will assist the Directors in carrying out their responsibilities under any applicable provisions of the federal securities laws and any exemptive orders granted by the SEC ("Exemptive Order") by providing the Directors, in a timely manner, with all information reasonably necessary for the Directors to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Directors whenever Owner voting instructions are disregarded. 10.3 REMEDIES. If it is determined by a majority of the Directors, or a majority of disinterested Directors, that a material irreconcilable conflict exists, as described in Section 10.1 above, the Company shall, at its own expense take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including, but not limited to: (a) withdrawing the assets allocable to some or all of the separate accounts from the applicable Fund and reinvesting such assets in a different investment medium, including (but not limited to) another fund managed by the Adviser, or submitting the question whether such segregation should be implemented to a vote of all affected owners and, as appropriate, the assets of any particular group that votes in favor of such segregation, or offering to the affected owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 10.4 CAUSES OF CONFLICTS OF INTEREST. (a) STATE INSURANCE REGULATORS. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the applicable Fund and terminate this Agreement with respect to such Account within the period of time permitted by such decision, but in no event later than six months after the Directors inform the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Directors. Until the end of the foregoing period, the Distributor and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund to the extent such actions do not violate applicable law. (b) DISREGARD OF OWNER VOTING. If a material irreconcilable conflict arises because of Company's decision to disregard Owner voting instructions and that decision represents a minority position or would preclude a majority vote, Company may be required, at the applicable Fund's election, 10 withdraw the Account's investment in said Fund. No charge or penalty will be imposed against the Account as a result of such withdrawal. 10.5 LIMITATIONS ON CONSEQUENCES. For purposes of Sections 10.3 through 10.5 of this Agreement, a majority of the disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict. In no event will the Fund, the Adviser or the Distributors be required to establish a new funding medium for any of the Contracts. The Company shall not be required by Section 10.3 to establish a new funding medium 11 for the Contracts if an offer to do so has been declined by vote of a majority of Owners affected by the irreconcilable material conflict. In the event that the Directors determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the applicable Fund and terminate this Agreement as quickly as may be required to comply with applicable law, but in no event later than six (6) months after the Directors inform the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict. 10.6 CHANGES IN LAWS. If and to the extent that Rule 6e-2 and Rule 6e- 3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding, (as defined in the Exemptive Order, if any) on terms and conditions materially different from those contained in the Exemptive Order, if any, then (a) the Funds and/or the Company, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 11. MAINTENANCE OF RECORDS. (a) Recordkeeping and other administrative services to Owners shall be the responsibility of the Company and shall not be the responsibility of the Fund, Adviser or Distributor. None of the Fund, the Adviser or Distributor shall maintain separate accounts or records for Owners. Company shall maintain and preserve all records as required by law to be maintained and preserved in connection with providing the Services and in making shares of the Fund available to the Account. (b) Upon the request of the Adviser or Distributor, the Company shall provide copies of all the historical records relating to transactions between the Fund and the Account, written communications regarding the Fund to or from the Account and other materials, in each case (1) as are maintained by the Company in the ordinary course of its business and in compliance with applicable law, and (2) as may reasonably be requested to enable the Adviser and Distributor, or its representatives, including without limitation its auditors or legal counsel, to (A) monitor and review the Services, (B) comply with any request of a governmental body or self-regulatory organization or the Owners, (C) verify compliance by the Company with the terms of this Agreement, (D) make required regulatory reports, or (E) perform general customer supervision. The Company agrees that it will permit the Adviser and Distributor or such representatives of either to have reasonable access to its personnel and records in order to facilitate the monitoring of the quality of the Services. (c) Upon the request of the Company, the Adviser and Distributor shall provide copies of all the historical records relating to transactions between the Fund and the Account, written communications regarding the Fund to or from the Account and other materials, in each case (1) as are maintained by the Adviser and Distributor, as the case may be, in the ordinary course of its business and in compliance with applicable law, and (2) as may reasonably be requested to enable the Company, or its representatives, including without limitation its auditors or legal counsel, to (A) comply with any request of a governmental body or self- regulatory organization or the Owners, (B) verify compliance by the Adviser and Distributor with the terms of this Agreement, (C) make required regulatory reports, or (D) perform general customer supervision. (d) The Parties agree to cooperate in good faith in providing records to one another pursuant to this Section 11. 12 12. TERM AND TERMINATION. 12.1 TERM AND TERMINATION WITHOUT CAUSE. The initial term of this Agreement shall be for a period of one year from the date hereof. Unless terminated by any Party upon not less than thirty (30) days prior written notice to the other Parties, this Agreement shall thereafter automatically renew from year to year, subject to termination at the next applicable renewal date upon not less than 30 days prior written notice. Any Party may terminate this Agreement following the initial term upon six (6) months advance written notice to the other Parties. 12.2 TERMINATION BY FUND, DISTRIBUTOR OR ADVISER FOR CAUSE. Adviser, Fund or Distributor may terminate this Agreement immediately by written notice to the Company, if any of them shall determine, in its sole judgment exercised in good faith, that (a) the Company has suffered a material adverse change in its business, operations, financial condition or prospectus since the date of this Agreement or is the subject of material adverse publicity; or (b) any of the Contracts are not registered, issued or sold in accordance with applicable state and federal law or such law precludes the use of Fund shares as the underlying investment media of the Contracts issued or to be issued by the Company. 12.3 TERMINATION BY COMPANY FOR CAUSE. Company may terminate this Agreement by written notice to the Adviser, Fund and Distributor in the event that (a) the Fund shares are not registered, issued or sold in accordance with applicable state or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; (b) the Fund ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Fund may fail to so qualify; or (c) the Fund fails to meet the diversification requirements specified in Section 6.4(a). 12.4 TERMINATION BY ANY PARTY. This Agreement may be terminated by any Party at any time (A) by giving 30 days' written notice to the other Parties in the event of an material breach of this Agreement by the other Party or Parties that is not cured during such 30-day period, and (B) (i) upon institution of formal proceedings relating to the legality of the terms and conditions of this Agreement against the Account, Company, Fund, Adviser or Distributor by the NASD, the SEC or any other regulatory body provided that the terminating Patty has a reasonable belief that the institution of formal proceedings is not without foundation and will have a material adverse impact on the terminating Party, (ii) by the non- assigning Party upon the assignment of this Agreement in contravention of the terms hereof, or (iii) as is required by law, order or instruction by a court of competent jurisdiction or a regulatory body or self-regulatory organization with jurisdiction over the terminating Party. 12.5 LIMIT ON TERMINATION. Notwithstanding the termination of this Agreement with respect to the Fund, for so long as any Contracts remain outstanding and Invested in the Fund each Party hereto shall continue to perform such of its duties hereunder as are necessary to ensure the continued tax deferred status thereof and the payment of benefits thereunder, except to the extent proscribed by law, the SEC or other regulatory body. Notwithstanding the foregoing, nothing in this Section 12.5 obligates the Fund to continue in existence. In the event that the Fund elects to terminate its operations, the Company shall, as soon as practicable, obtain an exemptive order or order of substitution from the SEC to remove all Owners from the Fund. 13. NOTICES. All notices hereunder shall be given in writing (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile, by registered or certified mail or by overnight delivery (postage prepaid, return receipt requested) to the respective Parties as follows: 13 IF TO TIMOTHY VARIABLE: The Timothy Plan Variable Series 1304 West Fairbanks Avenue Winter Park, FL 32789 Facsimile: (407) 644-4574 e-mail: info@timothyplan.com IF TO ADVISER: Timothy Partners, Ltd. 1304 West Fairbanks Avenue Winter Park, FL 32789 Facsimile: (407) 644-4574 e-mail: info@timothyplan.com IF TO DISTRIBUTOR: Timothy Partners, Ltd. 1304 West Fairbanks Avenue Winter Park, FL 32789 Facsimile: (407) 644-4574 e-mail: info@timothyplan.com IF TO COMPANY: Annuity Investors Life Insurance Company 250 East Fifth Street Cincinnati, OH 45202 Attention: Mark F. Muething Facsimile No.: (513) 357-3397 14. MISCELLANEOUS. 14.1 CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way affect the construction or effect of any provisions hereof. 14.2 ENFORCEABILITY. If any portion of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 14.3 COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 14.4 REMEDIES NOT EXCLUSIVE. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the Parties hereto are entitled to under state and federal jaws. 14.5 CONFIDENTIALITY. Subject to the requirements of legal process and regulatory authority, the Fund and Distributor shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by the Company hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the Company until such time as it may come into the public domain. 14 14.6 GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Ohio applicable to agreements fully executed and to he performed therein; exclusive of conflicts of laws. 14.7 SURVIVABILITY. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof shall survive termination of this Agreement. In addition, all provisions of this Agreement shall survive termination of this Agreement in the event that any Contracts are invested in the Fund at the time the termination becomes effective and shall survive for so long as such Contracts remain so invested. 14.8 AMENDMENT AND WAIVER. No modification of any provision of this Agreement will be binding unless in writing and executed by the Party to be bound thereby. No waiver of any provision of this Agreement will be binding unless in writing and executed by the Party granting such waiver. Notwithstanding anything in this Agreement to the contrary, the Company may unilaterally amend Exhibit A hereto to add additional series of The Timothy Plan Variable Funds ("New Funds") as Funds by sending to the Company a written notice of the New Funds. Any valid waiver of a provision set forth herein shall not constitute a waiver of any other provision of this Agreement. In addition, any such waiver shall constitute a present waiver of such provision and shall not constitute a permanent fixture waiver of such provision. 14.9 ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and assigns; provided however that neither this Agreement nor any rights, privileges, duties or obligations of the Parties may be assigned by any Party without the written consent of the other Parties or as expressly contemplated by this Agreement. 14.10 ENTIRE AGREEMENT. This Agreement contains the full and complete understanding between the Parties with respect to the transactions covered and contemplated hereunder, and supersedes all prior agreements and understandings between the Parties relating to the subject matter hereof, whether oral or written, express or implied. 14.11 RELATIONSHIP OF PARTIES: NO JOINT VENTURE, ETC. Except for the limited purpose provided in Section 3.8, it is understood and agreed that the Company shall be acting as an independent contractor and not as an employee or agent of the Adviser, Distributor or the Fund, and none of the Parties shall hold itself out as an agent of any other Party with the authority to bind such Party. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and among any of the Company, Fund, Adviser, or Distributor. 14.12 EXPENSES. All expenses incident to the performance by each Party of its respective duties under this Agreement shall be paid by that Party. 14.13 TIME OF ESSENCE. Time shall be of the essence in this Agreement. 14.14 NON-EXCLUSIVITY. Each of the Parties acknowledges and agrees that this Agreement and the arrangements described herein are intended to be non-exclusive and that each of the Parties is free to enter into similar agreements and arrangements with other entities. 14.15 OPERATIONS OF FUNDS. In no way shall the provisions of this Agreement limit the authority of the Fund, the Company or Distributor to take such action as it may deem appropriate or advisable in connection with all matters relating to the operation of such Fund and the sale of its shares. In no way shall the provisions of this Agreement limit the authority of the Company to take such action as it may deem appropriate or advisable in connection with all matters relating to the provision of Services or the shares of fund other than the Fund offered to the Account. 15 IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be duly executed as of the date first above written. Annuity Investor Life Insurance Company By: _________________________________ Name: Mark F. Muething Title: Senior Vice President Timothy Partners, Ltd. - Adviser By: _________________________________ Name: Arthur D. Ally Title: General Partner Timothy Partners, Ltd. - Distributor By: _________________________________ Name: Arthur D. Ally Title: General Partner The Timothy Plan Variable Series on behalf of the Fund By: _________________________________ Name: Arthur D. Ally Title: President 16 Exhibit A The Fund: The Timothy Plan Variable Series 17 Exhibit A-1 Separate Accounts: Annuity Investors Variable Account B 18 Exhibit B The Services Company shall perform the following services. Such services shall be the responsibility of the Company and shall not be the responsibility of the Fund, Adviser or Distributor. 1. Maintain separate records for each Account, which records shall reflect Fund shares ("Shares") purchased and redeemed, including the date and price for all transactions, Share balances, and the name and address of each Owner, including zip codes and tax identification numbers. 2. Credit contributions to individual Owner accounts and invest such contributions in shares of the Funds to the extent so designated by the Owner. 3. Disburse or credit to the Owners, and maintain records of, all proceeds of redemptions of Fund shares and all other distributions not reinvested in shares. 4. Prepare and transmit to the Owners, periodic account statements showing, among other things, the total number of Fund shares owned as of the statement closing date, purchases and redemptions of shares during the period covered by the statement, the net asset value of the Funds as of a recent date, and the dividends and other distributions paid during the Statement period (whether paid in cash or reinvested in shares). 5. Transmit to the Owners, as required by applicable law, prospectuses, proxy materials, shareholder reports, and other information provided by the Adviser, Distributor or Fund and required to be sent to shareholders under the Federal securities laws. 6. Transmit to Distributor purchase orders and redemption requests placed by the Account and arrange for the transmission of funds to and from the Fund. 7. Transmit to Distributor such periodic reports as Distributor shall reasonably conclude is necessary to enable the Fund to comply with applicable Federal securities and state Blue-Sky requirements. 8. Transmit to the each Account confirmations of purchase orders and redemption requests placed by each Account. 9. Maintain all account balance information for the Account and daily and monthly purchase summaries expressed in shares and dollar amounts. 10. Prepare, transmit and file any Federal, state and local government reports and returns as required by law with respect to each account maintained on behalf of the Account. 11. Respond to Owners' inquiries regarding, among other things, share prices, account balances, dividend options, dividend amounts, and dividend payment dates. 19 Exhibit C Account Information 1. Entity in whose name each Account will be opened: Annuity Investors Life Insurance Company P.O. Box 5423 Cincinnati, OH 45201-5423 2. Employer ID number (For internal use only): 31 - 1021738 3. Authorized contact persons: The following persons are authorized on behalf of the Company to effect transactions in each Account:
Lynn Laswell 513-412-2924 John Burress 513-412-3194 Brian Sponaugle 513-412-2931 Anniece Griece 513-412-2935 Todd Gayhart 513-412-2932 Debbie Plummer 513-412-2938 Laura Lally 513-412-2933
4. Will the Accounts have telephone exchange? [ ] Yes [ X ] No (This option lets Company redeem shares by telephone and apply the proceeds for purchase in another identically registered Timothy Funds account.) 5. Will the Accounts have telephone redemption? [ ] Yes [ X ] No (This option lets Company sell shares by telephone. The proceeds will be wired to the bank account specified below.) 6. All dividends and capital gains will be reinvested automatically. 7. Instructions for all outgoing wire transfers: The Provident Bank Cincinnati, OH 45202 ABA # 042000424 For the Account of Annuity Investors Life Insurance Company Depository Account Account # 0697-394 Amount: Attn.: Wire Transfer Department 8. If this Account information Form contains changed information, the undersigned authorized officer has executed this amended Account Information Form as of the date set forth below and acknowledges the agreements and representations set forth in the Participation Agreement between the Company, the Fund, Adviser and Distributor: ______________________________________ ___________________ (Signature of Authorized Officer) (Date) 9. Company represents under penalty of perjury that: (i) The employer ID number on this form is correct; and 20 (ii) Company is not subject to backup withholding because (a) Company is exempt from backup withholding, (b) Company has not been notified by the IRS that it is subject to backup withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified the Company that it is no longer subject to backup withholding. (Cross out (ii) if Company has been notified by the IRS that it is subject to backup withholding because of underreporting interest or dividends on its tax return.) Please Note: Distributor employs reasonable procedures to confirm that instructions communicated by telephone are genuine and may not be liable for losses due to unauthorized or fraudulent instructions. Please see the prospectus for the applicable Fund' for more information on the telephone exchange and redemption privileges. 21 April 25, 1998 Annuity Investors Life insurance Company 250 East Fifth Street Cincinnati, OH 45202 Attention: Mark F. Muething Dear Mark: Re: Fee letter relating to the Annuity Investors Life Insurance Company Participation Agreement. Pursuant to the Participation Agreement by and among The Timothy Plan Variable Series (the "Fund"), and Annuity Investors Life Insurance Company (the "Company") dated May 1, 1998 (the "Participation Agreement"), the Company will provide certain administrative services on behalf of the registered investment companies or series thereof specified in Exhibit A. In recognition of the reduction in administrative expenses that derives from the performance of said administrative services, The Timothy Plan Variable Series Fund agrees to pay the Company the fee specified below. (a) For average aggregate amounts (as calculated in paragraph (b), below) invested through variable insurance products issued by the Company with the Fund, the monthly fee shall equal the percentage (calculated paragraph (b), below) of the applicable annual fee for each Fund specified in Exhibit A. (b) For purposes of computing the fee contemplated in paragraph (a) above, the Fund shall calculate and pay to the Company an amount equal to the product of: (a) the product of (i) the number of calendar days in the applicable month divided by the number of calendar days in that year (365 or 366 as applicable) and (ii) the applicable percentage specified in Exhibit A, hereto, multiplied by (b) the average daily market value of the investments held in such Fund pursuant to the Participation Agreement computed by totaling the aggregate investment (share net asset value multiplied by the total number of shares held) on each day during the calendar month and dividing by the total number of days during such month. (c) The Fund shall calculate the amount of the payment to be made pursuant to this Letter Agreement at the end of each calendar month and will make such payment to the Company within 30 days after receiving the report referenced in paragraph (e), below. Fees will be paid by wire transfer or by check. All payments hereunder shall be considered final unless disputed by the Company in writing within 60 days of receipt. (d) The parties agree that the fees contemplated herein are solely for shareholder servicing and other administrative services provided by the Company and do not constitute payment in any manner for investment advisory, distribution, trustee, or custodial services. (e) The Company agrees to provide the Fund by the 15th day of each month with a report, which indicates the number of Owners that hold Contract interests in each Account as of the last day of the prior month. (f) If requested in writing by the Fund, and at the Fund's expense, the Company shall provide to the Fund, by February 14th of each year a "Special Report" from a nationally recognized accounting firm reasonably acceptable to the Fund which substantiates for each month of the prior calendar year: (a) the number of Owners that hold, through an Account, interests in each Account maintained by the Company on the last day of each month which held shares for which the fee provided or in this Letter Agreement was received by the Company, (b) that 22 any fees billed to the Fund for such month were accurately determined in accordance with this Letter Agreement, and (c) such other information in connection with this Agreement and the Participation Agreement as may be reasonably requested by the Fund. (g) The parties hereto agree that the Fund may unilaterally amend Schedule A hereto to add additional investment companies or series thereof ("New Funds") as Funds subject to the provisions of this Letter Agreement by sending to the Company a written notice of the New Funds and indicating therein the fees to be paid to the Company with respect to the administrative services provided pursuant to the Participation Agreement in connection with such New Funds. (h) This Letter Agreement shall terminate upon termination of the Participation Agreement. Accordingly, all payments pursuant to this Letter Agreement shall cease upon termination of the Participation Agreement. (i) Capitalized terns not otherwise defined herein shall have the meaning assigned to herein in the Participation Agreement. If you are in agreement with the foregoing, please sign and date below where indicated and return one copy of this signed letter agreement to me. Very truly yours, Arthur D. Ally President Accepted and agreed as of May 1, 1998 by Annuity Investors Life Insurance Company By: _______________________________ Name: Mark F. Muething Title: Senior Vice President 23 Exhibit A to Letter dated April 25, 1998 The Funds subject to this Agreement and applicable annual fees are as follows: Fund Annual Fee The Timothy Plan Variable Series .20% 24 EX-99.B11 3 AUDITORS CONSENT Exhibit 11 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the references to our firm in Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A of The Timothy Plan and to the use of our report dated January 16, 1998 on the financial statements and financial highlights. Such financial statements and financial highlights are incorporated by reference in the Statement of Additional Information, which is part of such Registration Statement. /s/ Tait, Weller & Baker TAIT, WELLER & BAKER Philadelphia, Pennsylvania April 15, 1998 EX-27.A 4 FINANCIAL DATA SCHEDULE - CLASS A
6 0000916490 THE TIMOTHY PLAN 1 CLASS A 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 20,785,541 22,501,232 82,273 413 15,052 22,635,403 0 0 38,474 38,474 0 20,694,056 914,727 690,247 0 0 187,182 0 1,715,691 11,208,072 172,686 131,990 6,212 318,183 (7,295) 2,264,075 796,018 3,052,798 0 0 1,122,228 0 232,439 96,627 88,668 10,907,737 0 164,422 0 0 142,990 0 512,128 9,369,068 11.24 .02 2.37 0 1.38 0 12.25 1.60 0 0
EX-27.B 5 FINANCIAL DATA SCHEDULE - CLASS B
6 0000916490 THE TIMOTHY PLAN 2 CLASS B 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 20,785,541 22,501,232 82,273 413 15,052 22,635,403 0 0 38,474 38,474 0 20,694,056 938,901 350,224 0 0 187,182 0 1,715,691 11,388,857 172,686 131,990 6,212 318,183 (7,295) 2,264,075 796,018 3,052,798 0 0 1,119,087 0 542,712 43,891 89,856 10,907,737 0 164,422 0 0 142,990 0 512,128 7,453,437 11.22 (.03) 2.32 0 1.38 0 12.13 2.26 0 0
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